In the early days of Russian privatization, Russians were handed out vouchers in exchange for their stake in the collective economy. Dmitri Olshansky, an economist who thought he knew a good buy, took his vouchers to Gazprom, the largest enterprise in Russia and the largest gas company in the world.
He got a receipt for his vouchers, but three years later he still has no shares in the company and no answers to his questions.
From this dark state of impenetrability, Russia is quickly emerging into ledgers of world portfolio investors. Gazprom is pitching its first issue of American Depositary Receipts (ADRs), which trade like stocks on exchanges in the West.
Still a tiny share of emerging-market portfolios, the market in Russian stocks increasingly draws interest from more-or-less conventional investors. Russia offers some of the most stunningly low share prices, relative to earnings or assets, in the world.
But in the Russian market, almost everything is happening for the first time, and those who jump in are getting a wild ride. For skeptics like Mr. Olshansky, shares of companies such as Gazprom are a hard sell.
The market fell 7 percent in the two days after a Sept. 22, news program in which President Boris Yeltsin's heart surgeon suggested that the leader might not be healthy enough to undergo an operation. But in a market that roughly doubled in price in 1996, such jolts are mere bumps in the road. If an investor believes that Russia is making its way toward modern market capitalism, then prices represent a huge opportunity, says Fred Berliner, head trader at the Moscow brokerage Troika Dialog. He warns: "Valuations are low by world standards, but this is Russia."
Andrei Arofikin, a research analyst at CS First Boston, says that most Russian stocks are fairly valued "given the amount of risks people are taking."
The main risk is political. The Russian market was the fastest rising in the world during the first half of 1996, as Mr. Yeltsin's approval rating was rising in the polls against a Communist contender for the presidency.
Russians expected a huge influx of foreign capital once Yeltsin won, but it has not yet come. The explanation, for stock traders, is a basic one: By election day, traders had already discounted his victory by betting on it.
The Russian market is now stalled because of Yeltsin's health problems. The major political risk, as far as investors are concerned, is that the blunt-spoken and unpredictable national security chief Alexander Lebed might succeed Yeltsin.
The perception in investor circles, Mr. Arofikin says, is that Mr. Lebed's leadership could derail Russia from the reform track for six months to a year. The resulting loss of international credit and dumping of Russian bonds by both foreign and Russian investors could cause a collapse of the fragile banking system.
THE risks in Russia have much to do with business as well as politics, however. Financial capitalism is new here, and nearly everything companies do, they are doing for the first time. The worst problem for investors is the dearth of reliable information about enterprises and assets. Russians are still shedding ingrained practices aimed more at keeping strangers out than drawing investors in.
Gazprom still maintains tight control over who owns its shares domestically, but it is trying to open itself up to scrutiny enough to sell 1 percent ownership to foreign investors. To qualify to issue ADRs, the company had an independent audit by Price Waterhouse. But investors still have no estimate of the gas reserves of the company, which produces about a quarter of the world's natural gas.
"All these companies are improving and learning," says Tom Adshead, a CS First Boston analyst. "At first, they were put aback by having to deal with shareholders at all."
As stock markets go, the Russian market is still thin, says broker Martin Viggle of Brunswick brokerage in Moscow. There is still too little eligible stock to meet demand and too little trading volume for an efficient market. About eight companies qualify as blue chips, meaning their stock shares can be traded with relative efficiency and they meet basic Western standards of financial disclosure. Another 20 or 30 companies are traded regularly, and perhaps another 200 are occasionally traded.
But the market is making rapid progress. Six companies have issued ADRs through the Bank of New York, so they can be traded in Western exchanges, the Russian Securities and Exchange Commission has been given ministerial status, and eight Russian mutual funds have applied for official approval in the past year.