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Uralsib - Russia Daily Equity Update - Nov 26, 2010.

Market Overview

A Grey Black Friday

Slow trading today. Today is so-called Black Friday in the US, the biggest shopping day of the year. How retailers report salesvolumes after this weekend will have a big impact on investor sentiment and will be a key determinant as to whether the rally ofthe past few days can extend into a longer year-end rally or whether it stops in its tracks. There are no economic reports of anysignificance due in the US or Europe today and US markets will trade as if it is New Year's eve.

(To view the full report please click here:

http://russianreports.aiidatapro.com/UralSibEN/101126.pdf)

Most other markets will take theircue from that and activity will again likely be as slow as yesterday. Next week is the busiest week of the month for economic indicators,including the ISM Manufacturing update for China and the US on Wednesday and the nonfarm payroll report on Friday.That schedule is enough to keep investors cautious into the weekend. In Russia, X5 Retail will report 3Q10 numbers and the CentralBank will decide (almost certainly) to keep the current 7.75% re-finance rate unchanged for another month.

Confidence pushes Russian markets up. Uralkali suffered from the sink-hole news yesterday. Activity on most markets aroundthe world was quiet yesterday due to the Thanksgiving Holiday in the US. Moscow's bourses were no exception. But investor confidenceis increasing and helped push the RTS Index up 1.3%, to 1,618.6, and MICEX up 0.6% to 1,571.3. The ruble traded betteragainst both the dollar and the euro and that helped the RTS to outperform its ruble-based peer. Sberbank and Gazprom, thetwo state heavyweights in the indices, accounted for most of the move higher. In London, the IOB Index of GDRs closed 0.8%better. Uralkali was a feature as investors reacted cautiously to a report of a sink-hole near one of its operations. The event is notsignificant in our opinion and the stock should recover yesterday's 1.8% decline rather quickly and push further ahead as investorsrightly focus on the merger benefits and discount the sink-hole.

Surprisingly Positive

Investors not spooked by Ireland or China. The weeklyfund flows report from EPFR Global showed surprisinglystrong inflows in the week to Wednesday. In total, EM fundstook in $2.4 bln, which was much better than the previousweek and came against a backdrop of very weak internationalmarkets. Fund investors, unlike many direct market participants,view events such as the Irish debt crisis and Chinatightening as both temporary and a buying opportunity. TheEM balanced fund category again took the bulk of the newmoney, as investors still prefer not to make specific regionalor country choices but to spread risk and exposure; that fundcategory took in $1.5 bln of the new money. In total, accordingto EPFR reports, players have now invested close to $80 bln into EM funds YtD, versus last year's record inflow of $83 bln.This year will set another new record for this asset class.

Emerging Europe back in favor. The other surprise was the $137 mln invested into Emerging Europe funds. With the main issuein global markets being the eurozone debt crisis, investors had been expected to be wary of contagion into this region. Again,they see this as either all priced into the low regional valuations or as a temporary event. The fact that Emerging Europe fundshave started to attract net new money flows - almost $250 mln over the past six weeks - is positive for Russia, as Russian exposureaccounts for almost 50% of these funds' weighting. Investors withdrew $700 mln from these funds in 9M10, affecting Russiamore than other regional markets.

Turkey-Russia switch now over. Russia's share of last week's $137 mln of inflows into EE funds, which can be estimated at$68 mln, more than compensates for the net $25 mln withdrawn directly from Russia funds last week. That withdrawal was,however, better than the net redemption of $33 mln from Brazil funds, the $102 mln taken from India funds, and the $95 mlnredeemed from Turkey funds. The Russia to Turkey switch that lasted from early July to late October is now well and truly over.China funds reported inflows of $517 mln last week, the 11th straight week of positive flows. Retail fund investors share none ofthe concerns about a slowdown in China that have affected the Russian and other global markets in recent weeks.

Uralkali

Sink hole near Mine-1 should not affect shipment volumes

Sink-hole is not near the company's operations, and no injurieswere reported. Yesterday Uralkali (URKA LI - Buy) announced a sinkhole on the six-km railway connection to Mine-1 (which was flooded in2006). The sink hole did not occur near the company's operations, anddid not cause any injuries. As far as we understand this area has a highrisk for sink holes (according to Russian Railways, the accident happenedas a result of collapse in the soil near a carnallite course), and thus theaccident came as no big surprise. In 2009, to avoid the risk of sink holesnear Mine-1, Uralkali transferred its main freight flows to a new, 53-kmrailway connection (with Uralkali financing $200 mln, nearly half of thetotal cost).

No material effect on sales. The six-km railway connection where theaccident occurred was used to transport potash products from Uralkali's processing plant. The plant's annual capacity is about300,000 tons of potash product, which is only 5% of the company's total production capacity (5.5 mln tons). The company saidit does not expect any changes to its production/shipment plan, as it will replace the damaged railway by transporting potashsupplies by road to its primary distribution facilities.

News might provide a buying opportunity. We view the news as fundamentally neutral for the stock as (1) the company'sshipment plan and financials have not been affected, and (2) its new owners guarantee against any potential political aspects ofthe accident. Therefore, we recommend using any weakness in the name as a buying opportunity.

www.uralsibcap.com

URALSIB Capital, 8, Efremova St, Moscow, Russia,119048,

phone:+7(095)788-0888

fax: +7(095)785-1206
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Publication:Russian Banks and Brokers Reports
Geographic Code:4EXRU
Date:Nov 26, 2010
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