Markets surged after the swearing-in of Dmitry Medvedev as president in a pomp-filled ceremony Wednesday and a tax-cutting speech by Vladimir Putin the day after, when he was approved as prime minister.

The RTS, Russia's benchmark index, rose 2 percent Wednesday, the day of the inauguration, while the MICEX Index fared a little better, increasing by 2.7 percent.

Oil stocks were buoyed by Putin's announcement Thursday that taxes on oil exploration would be cut significantly, pushing LUKoil up 6.4 percent and Rosneft up 6.7 percent on the day.

The RTS closed Thursday, the last day of trading before the Victory Day national holiday, up by 7.6 percent to 2283.99 points, while MICEX, where most trading takes place, rose 7.7 percent to 1795.67 points.

The RTS Oil & Gas Index rose 9.2 percent over the four days of trading, and in London on Friday Gazprom added 3.4 percent, LUKoil 4 percent and Rosneft 3 percent.

While Russia has been caught up in the maelstrom of the global financial crisis, which has sent global markets tumbling since the beginning of the year, analysts have noted large inflows into Russia-focused funds over the same period.

The MSCI Russia Index outperformed the global emerging-market index by 10.5 percent over the week and, having lagged behind the global benchmark in the year to date, it is now outperforming by almost 4 percent. According to EPFR Global, a total of $1.4 billion has been invested into Russia funds so far this year, compared with an outflow of $5.2 billion from China funds and a loss of $455 million from India funds.

Yet Russian markets still appear undervalued, as Bloomberg noted that stocks on the RTS are currently trading at an average of 9.52 times earnings, making it the worst-performing stock market among Europe's 10 largest.

Investors said one reason for this was that the Russian market was dominated by oil stocks, which typically have lower price-to-earning ratios than manufacturing or consumer stocks. Added to that, some investors have still shied away from the market in light of the political changeover.

"There has been a bit of a misunderstanding about what the transfer of power means in Russia," said James Fenkner, a director at Red Star Asset Management. "There has been a lot of pessimism in Russia, too, and we have seen big Russian sellers of Gazprom. This has lifted over the last couple of days."

The week's double coronation sparked a spurt of market activity in what has otherwise been a quiet couple of weeks, with many Russian-based buyers and sellers out of town for the traditional May vacation.

For the first time since January, the RTS was back above 2,200 points, led by the metals and mining sector. Coal firm Raspadaskaya attracted interest on the news that it planned to list Global Depositary Receipts in London, while steel companies Severstal and NLMK soared on Lehman Brothers coverage and high steel prices.

Oil prices hit another record high, soaring well above $120 per barrel, buoying oil stocks. Big names such as Gazprom and LUKoil did well, but investors were wary to place bets that it's a real recovery.

The recovery, said Fenkner, is "very specific." "Oil and metals have completely recovered [their earlier losses], but what hasn't quite recovered is everything else."

"Telecoms are in the gutter, and retails are also doing pretty poorly," he said.

Unified Energy Systems, which is to be broken up shortly, has started to climb back over the last two weeks after a sell-off, closing Thursday at $1.06 per share.

UES is "very cheap," said Alexander Kotikov, a utilities analyst at Troika Dialog.

When UES is de-listed on Jun. 6, shareholders will receive holdings in a basket of 23 different companies, ranging from generating firms to transmission entities, in return for their UES shares.

Analysts have valuations for the majority of the basket of stocks, and UES is trading at a "deep discount" to that basket, Kotikov said.

"It represented a fantastic arbitrage opportunity, and still does," he said.