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Russian markets rally
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May 17, 1999: 8:51 a.m. ET
Russian equities and bonds surge after Yeltsin escapes impeachment
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LONDON (CNNfn) - Russian equity and bond markets bounced back Monday after the Russian parliament defeated an attempt to impeach President Boris Yeltsin.
Russian shares rallied on the outcome of Saturday's showdown between Yeltsin and his foes, with the benchmark RTS1-Interfax index up more than 12 percent at 92.58. The gain recovered a large part of last week's heavy losses related to Yeltsin's dismissal of Prime Minister Yevgeny Primakov and the entire government.
The bond market also saw buyers return, with the benchmark Russia Global bond due 2028 up 2.6 points at just under 45.
But traders cautioned that the rebound is likely to be temporary. "It is a mix of desperate short covering by domestic banks and a relief rally," David Longmuir, head of equities at Renaissance Capital in London, told CNNfn.com.
International investors were conspicuous by their absence in Monday's rally, which occurred as markets in Western Europe suffered sharp reverses due to jitters over a possible hike in U.S. interest rates.
The vote in the Russian parliament, or Duma, that failed to remove Yeltsin Saturday may have averted the threat of another constitutional crisis, but analysts believe there is more trouble to come.
"They will muddle through for a few months, but then you run into the parliamentary elections in early December," said Longmuir. The run up to the elections is almost certain to plunge Russia back into crisis, as the weekend's events have done nothing to repair the fundamental socio-economic problems confronting the nation.
Another major concern is Yeltsin's failing health and the huge power vacuum he will leave behind when he is eventually forced to quit or dies in office, analysts said.
"There is a risk that as investors wake up and smell the coffee, the market will suffer gradual selling pressures," Longmuir added.
Even if the $4.5 billion IMF rescue package negotiated last month gets back on track, it will do no more than allow Russia to service current IMF debt, Longmuir said.
The Duma is set to vote Wednesday on Yeltsin's choice as prime minister, former Interior Minister Sergei Stepashin, with all major parties already indicating that they will support him.
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