WHO CAN TRADE WELL IN RUSSIA? PART 5

Based on a presentation during FINEXPO Moscow – 2010:

“PECULIAR FEATURES OF TRADING IN AMERICAN STOCK EXCHANGES AND PROSPECTS OF DEVELOPMENT OF THE RUSSIAN STOCK MARKET”

In previous issues, we dealt with major statistics for the stock market of Russia and the US and information support, codirectional movement of RTS and S&P500 futures, some aspects of using relayed  stock market data in intraday trading as well as principles of creating medium-term, long-term and investment strategies.

As I showed before, the Russian market is determined by the blue chips which account for practically all stock exchange turnover at MICEX and the most liquid index, RTS. In addition, it perfectly correlates with the American market and its leading index, S&P500.

Besides, there are also American index and commodities futures which correlate well with certain sectors of the Russian market. For them, we have detailed fundamental information in the American market and cluster analysis of these futures for intraday trading.

The chart makes it clear why RTS and Sberbank shares (like others) opened on Friday, 26 November, with a gap down, with further direction of the move being quite obvious if you are guided by the cluster chart of the futures for the American index of S&P500.

Therefore, Russian markets are closely connected with Asian and European ones. But American counterparts remain the best indicator because the largest volume of futures for main instruments is traded in American stock exchanges round the clock through electronic systems where all current global tendencies are taken into account. Though main turnover takes place during the opening hours of American stock exchanges when the most significant trades occur and affect the entire global market.

This is why the most practical and comprehensible technique that I managed to implement in trading is a brief period of time in the domestic market involves analysis of major European and American indexes, banking and oil and gas sectors and use of correlation of some blue chips and the RTS index futures with the US wide market index of S&P500 for intraday trading. Interestingly, it isn't always that the RTS index follows S&P500 - in certain cases it is the other way around. This is why there are interesting aspects of using these peculiarities for intraday trading.

The following chart shows how American indexes are trying to continue their fall:

Here it is clear that their Russian counterparts draw them right back:

As a summary of what is said above, I would like to note that the domestic stock market has a huge potential which remains to be realized in the foreseeable future. This is why market liquidity should be increased by meeting the following objectives:

1) Increasing the number of stock exchange traded liquid shares by listing as many issuers in the stock exchange as possible - and not only from Russia, but also from neighboring CIS countries. Ukraine and Kazakhstan have the best prerequisites. Some steps are also made in this direction (for example, access to electronic trading for Ukrainian companies through KVIK)

2) Enhancing information support and transparency of trading by offering complete and reliable information on issuers to a wide range of trading participants

3) Improving the legal field in the area of securities trading:

- transition to a more advanced and transparent financial reporting system (based on US GAAP) and mandatory submission of such reports and other details that affect the price element of shares to relevant market regulators

- prevention of use of insider information for speculative purposes

4) Boosting the variety and number of market players through:

- legal safeguards to protect legal activities of investors and traders and to protect them from financial risks;

- establishment of a simplified procedure of opening a trading account to trade in the MICEX for non-residents (nationals of other states) and an offer of optimal leverage;

- promotion of financial literacy of the population and popularization of stock exchange trading (simply put, making this area fashionable which will bring a lot of funds at once)

5) And lastly, improving the very trading technologies before an army of investors and speculators have rushed to the market: clearing systems and technical support so that trading participants are not cut off because of slowdowns and limited throughput of the system.

Like many of my colleagues, stock exchange traders, I trade in American exchanges so far for reasons set out above. They offer market transparency and thousands of quite liquid stocks that make it equally possible for all market participants to make money. However, now I am seriously considering domestic exchanges as they have a huge potential. What we need is only time and certain effort to make the market civilized and highly liquid.

Igor Vasev – Head of the Stock Market Trading