Stock Market Looking for a Bottomworldwide

hi, if you find this massage is interesting, share with your friends 17/07/2008 | Moscow News №28 2008 Stock Market Looking for a Bottom > print version Last week, the Russian stock market was involved in a series of cash-outs, caused by the mounting concern over the stability of the U.S. financial system, as well as the increasing signs of a slowing down of the global economy, against the backdrop of the ongoing inflationary trends. Reports of an easing in the tax burden on the oil and natural gas sector, which prompted the May rally, have this time served as a life buoy for domestic shareholders. LATEST NEWS Russia insists on Georgian troop pullout to end Abkhazia conflict 10:48 19/07/2008 |Russia's president told Germany's foreign minister at talks on the conflict between Georgia and its rebel region Abkhazia that Tbilisi must pull its troops out of the province before a peace deal can be reached. Medvedev urges Iran to fully cooperate with IAEA 22:26 18/07/2008 |Russia's president on Friday urged Iran to fully cooperate with the International Atomic Energy Agency (IAEA) over its nuclear program, the Kremlin press service said. Russia, China to sign agreement to end border dispute in July 20:44 18/07/2008 |Russian Foreign Minister Sergei Lavrov will visit China on July 21-22 to sign a document delineating a long-disputed border between the two countries, the Foreign Ministry said on Friday. Russia concerned over U.S.-Ukraine Black Sea military exercises 20:34 18/07/2008 |Russia's Foreign Ministry voiced on Friday its concerns over the U.S.-Ukrainian Sea Breeze naval exercises currently underway in the Black Sea. more news The flight from stock risks has become widespread amid the worsening condition of the U.S. mortgage market linchpins Freddie Mac and Fannie Mae. This is due to the fact that in a shrinking real estate market, the risk of the beleaguered lenders defaulting on $5.2 trln of the $11.2 trln mortgage debts threatens a sharp worsening of the situation in the troubled sectors of the economy - construction and finance, thus increasing the risks of an economic slowdown. That is why investors paid such close attention to a recent Lehman Brothers memo suggesting that as much as $75 bln will need to be raised in additional capital. Such moves are designed to increase transparency, while the effects from the easing of monetary policy have yet to kick in to improve lending terms. The fact is that at a time when real estate prices were soaring, virtually all financial market agents were expanding their portfolios with mortgage backed securities, which have now significantly depreciated. In a bid to cover their losses, financial institutions started reporting such mortgage loans as off-balance sheet items. The demand to return them to the regular balance sheets can, therefore, potentially help recover the credibility of the financial system, but at the same time will encumber banks with additional write-downs on their holdings, which have already passed the $400 bln mark. Taking into consideration the nature of the lenders' operations and their key role in the mortgage market, this may have grave consequences for the U.S. economy. Spooked, stock market players started assuming the worst-case scenario in share quotes, with market value losses hitting 45 percent last week. Understanding the danger of the situation, financial regulators made an attempt to put out the fire. First, James Lockhart, director of the Office of Federal Housing Enterprise Oversight (OFHEO), said that the new accounting procedure will not affect Fannie and Freddie's capital requirements. But passions were only cooled after a U.S. Treasury and FRS program was made public. It aims to restore investor trust in these U.S. mortgage securities by opening access to the discount window and expanding credit lines; if necessary, the U.S. Treasury is ready to buy shares in the lenders and underwrite their ballooning debts. Amid a decline in demand for high risk assets, the Russian stock market has stayed within global market trends. Sell-offs were registered also among nonresidents, who were reducing long positions, despite reports of upcoming amendments to the RF tax code easing the tax burden on oil and natural gas enterprises. According to Lukoil CEO Vagit Alekperov, the proposed tax incentives will enable the industry to funnel an additional 400 billion rubles ($17 bln) into capital investment. But even the positive developments on the hydrocarbons market proved insufficient in the face of the external negative trends: under their impact, the MICEX index fell to a three-month low. This week one should pay attention to the financial performance of Citigroup, Merrill Lynch and the Bank of America, which could produce some unpleasant surprises. Price dynamics in the consumer sector and the housing market will attract special attention. Considering its significant overheating, the market should be expected to look for a ‘rock bottom' to stage a tangible rebound. An indication of that will be either the 1600 point mark (MICEX), i.e., the bottom of the downtrend, or a rise above 1675 points. The majority of traders will stay out of stock market battles, while speculators will have a good opportunity to cash in on volatility.