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Khodorkovsky release may spark Russian stocks rally

Mikhail Khodorkovsky was released from prison today.

Analysts predict Russian New Year’s stocks rally due to the pardon of Russian billionaire Mikhail Khodorkovsky.

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Russia is still struggling to lure foreign investors to counter capital outflows from internal markets. The exit of capital first started to widen after Khodorkovsky was jailed in 2003. Russian stocks have underperformed emerging market peers as concerns regarding regulatory challenges have increased among investors. Challenges regarding rule of law, civil society, a slowing economy and poor treatment of minority shareholders are lurking in the background in all investment prospect in Russia.

Russian state owned news agency RIA Novosti  cites a lawyer for jailed oil tycoon Mikhail Khodorkovsky who said Friday that his client had been released after President Vladimir Putin signed a decree pardoning Russia’s most famous prisoner. “We have just received official confirmation from the administration of the penal colony that Mikhail Borisovich [Khodorkovsky] has been released,” said lawyer Vadim Klyuvgant.

“This would send a message around the world that Russia is not in fact a repressive society,” Mattias Westman, chief executive of Prosperity Capital Management, which manages about $4 billion and is the largest Russia-focused money manager, said to Reuters prior to today’s discharge release of Khodorkovsky. “If investors not active in Russia buy into that, it could be helpful for the market.”

The Moscow Stock Exchange trades at 4.1 times estimated earnings, the lowest valuation among 21 emerging markets tracked by Bloomberg. OAO Gazprom, the nation’s biggest company and natural gas producer, trades at 3.1 times estimated earnings, while OAO Rosneft, the biggest oil producer, trades at 5.8 times estimated profits. This compares with 11.4 times for Statoil ASA, Norway’s biggest oil and gas producer.