Ed Bentley

Investors continue to pick up the pennies on Russia's exchanges on the back of a weak dollar, but the ailing economy could mean the party will soon be over.

Both the MICEX and RTS moved sideways, up less than 1 per cent over the week, but the indexes consolidated the biggest one-day rise in three months on Nov. 6.

Despite US consumer confidence coming in lower than expected last week and crude prices falling after higher than expected inventories, investors continued trading up on a wave of optimism.

"The weaker the economic data, the more pronounced the assurances of global leaders that all sorts of stimulus will stay until we see some improvement," said Ivan Ivanchenko, equities analyst at Deutsche Bank in Moscow.

Both exchanges have already passed many analysts' year-end targets already, but investors continue to be sucked into the rally as stimulus measures show no signs of ending this year.

"It is like ... picking up nickels in front of a steamroller," said Ivanchenko. "You can pick up as many as you can, but you really need to be careful and dodge the steamroller."

An abundance of liquidity and appetite for risk has boosted emerging markets around the world, but stimulus measures are beginning to put pressure on prices. Last week's US Consumer Sentiment Index, released by the University of Michigan, showed shoppers predicting inflation of 3.1 per cent in the next 12 months.

Authorities are likely to start swapping expansionary policy for inflation targeting, which would reverse sentiment on the exchanges.

"The party is in full roll, so I would expect some tightening and sobering talk sooner rather than later," Ivanchenko said.

A correction looks unlikely this year despite extra pressure coming on metals and oils as the US administration looks to strengthen the dollar.

"Investors are unlikely to be tempted to sell," Chris Weafer, chief strategist at UralSib, wrote in a note to investors. "There have been too many false bear-traps since the summer and investors are wary of falling into them."

The rouble slipped against the dollar last week, falling 6.4 per cent on November 12. Russia's currency remains strong at 28.5 to the greenback but analysts believe that it could drop further to around 30 at the beginning of next year.

"I think that the price of oil is not fundamentally justified and that some point we are going to see a correction in the price of oil and this is going to bring the rouble down," said Scott Semet, head of research at IFD Kapital.

A weaker rouble could boost the competitiveness of Russia's ailing industries.