Special Extra: Market Matters

The carnage continues

The carnage continues

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.

3 responses to “Special Extra: Market Matters

  1. Pretty much. The two big winners: GAZPROM and SBERBANK, both largely government owned and certainly government controlled corporations. I wonder how much money the Russian state was pumping into the stock market to buy back shares?

  2. I opened up the Financial Times website and I answered my own question:

    “Russia said on Tuesday it would pump $37bn in long-term subordinated loans into state-controlled banks in a new measure to fight off a deepening financial crisis that has seen the steepest losses ever on the Russian stock exchange.”

    Source: http://www.ft.com/cms/s/0/32ca8f78-9464-11dd-953e-000077b07658.html.

    Let’s see, can we add up how much Russia has spent so far? $130 billion + $50 billion + $37 billion + $X (unknown) billions spent by the Russian treasury to buy back rubles to stop a freefall in the ruble. By my calculation, this pushes up Russian spending to support the market and ruble somewhere between $220 and $300 billion. This is close to one-half of the value of Russia’s much lauded “reserve” funds, and we are only a month into the crisis.

  3. another interesting busineess-related bit of news from postimees.ee (free translation, it refers only to Estonian businessmen but implies all Eastern European businessmen):

    When dealing in Russia and Belorussia, Estonian businessmen disguise their nationality behind Central and Western European companies (“Dutch”, one of the businessmen says abashedly “I don’t do business in Russia but in Belorussia, I deal via a Dutch company”).

    So much for the Eastern European countries being a potentially good “bridge” between Western “Proper” Europe and Russia…

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