Russia’s RTS and Micex indexes have pushed to long term highs this week. Rising crude and a better economic outlook have seen investors buying in, amidst warnings the rally may not be sustainable.

Surging oil prices and a string of positive economic forecasts at home and abroad have helped investors return to the Russian stock market. Wednesday has seen the dollar denominated RTS briefly rise above the 1000 mark for the first time since last October. Russia’s other major index, the Rouble denominated MICEX, broke through the same mark last week, from around 600 at the start of the year.

MICEX head, Konstantin Korishenko, says the moves by global central banks and governments to stimulate flagging economies and inject liquidity where needed, combined with the slashing of interest rates around the world, is seeing demand for commodities on the rise – and that’s bringing investors back.

“The most serious factor is related to the price of commodities. But those prices, that level of prices, is also not a separate factor. It is tightly linked to monetary and fiscal policies of major central banks and governments. That’s why, what we see now is just a reflection of this over expansionary monetary and fiscal policy.”

Currently the global economy is falling at a slower pace, giving some optimism to investors that the worst of the crisis may be over. But Oleg Vyugin, Chairman of MDM Bank, says investors need to bear in mind that a correction is still possible, and that the rally has largely been driven by the availability of cheap money.

“Central banks were pumping money into the financial system. As a result investors accumulated a lot of cash. With low interest rates they can take risks without a clear understanding of future economic development.”

After trade in some Russian stocks shifted to global markets amidst a spate of market halts during the last quarter of 2008, trade in Russian stocks has begun to switch back to Russia. Volumes on the RTS and Micex are double those of Russian stocks traded in London, where many big Russian firms held IPOs in the last few years.

In part this reflects local investors being better placed to know about beaten down prices, with some residual wariness on the part of global investors about returning to Russia after the hits taken in late 2008. But the financial market watchdog says the return to favour of trading of trading in Russia is here to stay. Thanks to new initiatives on insider trading and tax innovations the Russian markets are more transparent, leading to greater confidence for foreign and domestic investors alike.