EDITORIAL: Putin, Enemy of Markets

The Russian stock market tracks the Georgia crisis

EDITORIAL

Putin, Enemy of Markets

The Moscow Times reported on Wednesday:  “Russia stocks slumped badly Tuesday as concerns over the continuing Georgia crisis fueled investor pessimism . . . .  The dollar-dominated RTS index sank 5.2 percent to 1,685.6 points, its lowest since November 2006, while the ruble-denominated MICEX Index dropped 6 percent to 1,361.54 points, its steepest fall in almost seven months.”

As the chart above clearly shows, between August 6th, when Russia invaded Georgia, and August 10th, when it agreed to a ceasefire at the urging of French President Nicholas Sarkozy, the market lost over 10% of its value.  It then recovered on news that the country would stop fighting, only to plunge again when it became clear that Russia had no intention of keeping its promise to Sarkozy, as world condemnation escalated.  Informed investors understand the basic reality:  The Russian market is a hollow fraud, utterly dependent upon the fluctuating market for crude oil, with no normal foundation based on diversity and consumer production.  On top of that, Russia is governed by a rogue regime capable of seizing assets and starting unwinnable wars at the drop of a hat, isolating Russia from world markets and terrorizing businessmen of all stripes.

The Motley Fool gets it:  “With all that’s occurring in Russia these days, I’m wondering how long it’ll be before Western investment in that nation grinds to a halt.”  They say Russia is now an “investment gulag.”

Today, the only ones who will praise the market are the shameless partisans who personally profit from convincing hapless investors that it is so, like Alexander Pertsovsky, CEO of Renaissance Capital, who says: “I confidently predict that at some point in the next 12 months, Russian equity will once again be the darling of the investment world. It will probably be time to sell.”  It’s sad, and deeply unprofessional, how the Moscow Times repeatedly publishes such comments of self-interest without requiring the writer to declare his conflict of interest.  The seedy relationship between Renaissance Capital and the MT’s board is of long standing and totally outrageous.

But no amount of sleight of hand can conceal that, as we report below, foreign capital is fleeing Russia by the billion, it simply cannot get out fast enough. The world stand slack-jawed and appalled by the crude, thuggish violence it has seen Russia display against its tiny neighbor Georgia, and it is voting with its wallets in the loudest, clearest manner possible.  Even Russians themselves know the truth; foreigners are largely excluded from the Russian stock market’s most valuable assets. Russian investors, not foreigners, are driving the Russian market into the toilet.