Research Notes

The first quarter of 2007 was not the best time for investors: the Russian stock market, which finished 2006 on an all-time high of 1,921.92 for RTS, came under pressure on two fronts from global commodity and capital markets. We maintain that the Russian equity market is presently going through a long-term rising trend, although the pace of growth will slow down. Such robust rally when in 2005 the RTS Index added on a hefty 85% or rocketed 71% in 2006 we will hardly see in the coming years. In line with our expectations, by the end of Q207 the RTS Index will hover in the 1,990-2,000 range, which implies total market growth in the region of 3-4%. Under our year end-2007 baseline forecast, the RTS Index will climb to 2,180, as a favorable environment continues to shore up investor demand for Russian equities. It is evident that foreign investors have become more cautious in assessing the prospects of emerging markets, although the Russian Federation still remains attractive thanks to the combination of strong growth rates of the national economy and a relatively favorable climate on global commodity markets.

By and large, the present picture leaves ample opportunities for successful trading on the stock market, which still represents promising industries and companies with untapped growth potential. We believe that robust growth is most likely in the sectors focusing on the rollout of national infrastructure – construction, transport, gas and electricity distribution, and electric power generation. We view the stocks of the companies which operate in these industries as holding the strongest upside potential. O&G firms which form over 60% of the market caps of all concerns tracked by the RTS Index are to a large extent fairly valued by the market already, whereas entities from other sectors have not yet exhausted their growth potential. We focus mainly on the shares of companies from these non-commodity sectors in our model portfolios.

Distribution of assets in the stock segments of model portfolios:

The annual yield of our conservative, balanced and aggressive strategies is expected to be 16%, 23% and 32%, respectively, with a possible decline in their value remaining unchanged at 5%, 15% and 30%. Our long-term upside strategy envisages 43% growth with risks limited to capital invested.

Clients of Finam Investment Company may receive full versions of analytical research reports translated into English by sending requests to the International Trading Department.

* Short overviews of equity research reports and sector reports are posted on the website http://www.finamrus.com with a 1-day delay after their full versions are emailed to the company’s clients. To get overviews on the day of their release, please contact your manager at Finam to sign up for full versions of research reports.