Interesting doings on the Russian stock market. The news, needless to say, is not good. The market is rapidly approaching one-third the value it had less than half a year ago.
Once again the Russian government, panicked and flailing, moved Tuesday morning to preempt the markets by shutting them all down for the first half of the trading day before it had seen even a second’s worth of trading activity. Combined with aggressive Kremlin intervention on behalf of a few core companies on the RTS index, this stabilized the RTSI, which closed down just under 1% at 858. But look beneath the surface, and you see that the carnage continued apace.
The RTSI maintains seven sectoral indices, and three (metals, electricals and industrial) were down over 7% on Tuesday. The consumer index was down nearly 5% and telecoms and financials were both down over 2%.
How then could the overall index be down just one? Well, it’s quite simple really. The oil index rebounded marginally and closed up 0.4%. Those who are mathematically inclined will realize immediately what that means: The oil index must have a huge share of the overall index, so that a minor gain on its part can wipe out huge losses in the other sectors. That’s so, of course, and a clear indication of just how utterly dependent the Russian stock market is on the oil industry and, more specifically, on the international price of crude.
The RTS also maintains a secondary index, called the RTSI-2. It doesn’t have Gazprom, Lukoil, Sberbank or any of the other companies that hold the Kremlin’s attention, but instead offers a cross-section of the more parochial economy, including stocks as the GUM department store and the Aeroflot airline.
The RTSI-2 closed down over 5% on Tuesday. Apparently, the Potemkin Kremlin is hoping nobody will notice.
The Washington Post reports that the market crash is already having devastating consequences in the real Russian economy. A major builder, as investment funds vanish, is “suspending more than 80 percent of his company’s portfolio of projects” in Moscow. Less building means Muscovites will pay more for housing as supplies dry up, and the situation will be far worse away from the wealthy capital city. Less building means fewer jobs in construction and lower wages for existing jobs. The same problem will spread to other industries, which is why the industrial index of the RTSI is down over 7% today.
The Kremlin’s propaganda line that the Russian stock market does not affect ordinary Russians has evaporated just as quickly as did it’s totally absurd canard about “stability” and “reserves” and building a system independent of the West.
Russia stands naked and shivering before the world.