Special Extra: The Final Countdown on the Russian Stock Market

The RTS index is down nearly 20% this week in Russia

The RTS index is down nearly 20% this week

For the 35th time since the August financial crisis began, the Russian stock markets were shut down on Thursday at 1:30 pm Moscow time.  At their low ebbs, the RTS dollar-denominated index was down over 8%, and the MICEX ruble index was down over 9% (the RTS closed down 7.4% and the MICEX closed down 4.4%) .  Shockingly, the MICEX index was flirting with breaking through the 500-point psychological barrier into a 400-point valuation, and the RTS index had Sberbank, the nation’s leading and state-owned financial institution, was down a whopping 13% at its low point, closing down nearly 9%, while Gazprom and LUKOil were both down over 10% at the close.  The RTS, too, was flirting with 400-point territory. Crude oil prices continued their slide, threatening $40/barrel territory, and the Russian markets collapsed once again.  The RTS is down nearly 20% this week alone, despite repeated market closures and furious Kremlin buying.  Had this not occurred, the value of the exchange could well be zero already.  European markets were also down, but less than a third the amount Russia was facing.

The Russian market has lost all crediblity as the result of so many arbitrary, panicked closures by the Kremlin (on average, two every week since August), especially since they have been useless in halting the slide, revealing the Kremlin to be impotent.  Shockingly, the value of the ruble has remained totally stable this week, but only because the Kremlin has now spent nearly $60 billion of the Russian people’s vital nest egg, almost $1 billion each and every day, creating artificial value for the nation’s currency to stave off even more intense consumer price inflation.  Consumer price inflation has already topped a sickening 12%, and the year is not even over yet.  The old Russian bugaboo, unpaid wages, has again reared its head, with arrearages increased by a horrifying 33% in October.

The country is now faced with an electric power crisis.  Domestic industry, especially petroleum, demands that the government continue its subsidization of electricity prices, as do domestic consumers, since the financial crisis is devastating their ability to pay.  But the electric industry, and its investors, have pinned their hopes on deregulation of prices in order to pay their own costs and generate sufficient capacity to meet national demand. They face bankruptcy if market prices are not bought on as the government has previously promised.  The Kemlin’s reserves are rapidly depleting, so it cannot solve the problem for everybody.  The lights may soon go out in Moscow.

The Kremlin’s response to all this? All it can think to do is to intensify the media crackdown in order to prevent Russians from learning what is really going on, just the same tactic that was tried in Soviet times. How then can Russia expect to avoid the fate the USSR experienced?

10 responses to “Special Extra: The Final Countdown on the Russian Stock Market

  1. and now Kremlin has acknowledged that in the week from 7th to 14th November their Central Reserve Funds have decreased by 21,9 billion dollars!!

    *shudder*

  2. Oh, please… all the world is facing a financial crisis. If you compare the diagrams you show with those of other countries you will realize that it is not only in Russia that things are going worse. Why present it as a Russian crisis only?

    LA RUSSOPHOBE RESPONDS:

    If you actually read this blog before shooting off your mouth, you’d know that Russia is by far the worst-performing major stock market in the world right now. It has lost 80% of its value, and has been repeatedly shut down to stop further losses, unlike any other major market in the world.

    Better to say nothing and be thought a fool than to speak and remove all doubt.

  3. Russia’s foreign reserves, which stood at about $475 billion on Nov. 7, according to Bloomberg, have fallen by $122.7 billion since early August.

    http://www.themoscowtimes.com/article/600/42/372490.htm

    Nov. 19 (Bloomberg) — Russia’s foreign-exchange reserves are draining fast and may take almost a decade of economic stability with them.
    Russia’s international reserves, the third-biggest after China’s and Japan’s, have fallen $122.7 billion, or 21 percent, since Aug. 8 as the central bank tried to shore up the ruble. At the same time, President Dmitry Medvedev, 43, has pledged more than $200 billion of tax cuts, loans and other measures to maintain economic growth, threatened by plummeting oil prices and investor flight.

    http://www.bloomberg.com/apps/news?pid=20601087&sid=aNMj9nRQ7sZY&refer=home

  4. er… so what? they still have about 500 billion USD and its enough for terrorizing its tiny neighbors and planing another invasion of Georgia. What will take I wounder for this amount to melt away? Thats when we will see a serious crisis in ruSSia.

  5. Luis,

    The answer is simple: they have $450 billion left. Of that, $200 billion has already been promised to a variety of oligarchs and business. This leaves $250 billion. If Russia continues spending $20 billion a week, simple math means that the reserves will be empty in a bit more than 12 weeks.

    However, yesterday, the price of the Urals Blend dropped to roughly $45 a barrel and some are predicting that it wall fall down even farther. This will mean deficits for the Russian state starting now, and the state will have to dip into what is left of the reserves if it refuses to devalue the ruble. All told, if Russia maintains the status quo, it has at best 3 months left before the reserve cookie jar is completely empty.

    Michel

  6. Anton, thanks for that info, much appreciated

  7. Andrea, of course it’s a global financial crisis, LR is a blog focused on Russia. Duh.

  8. Michel

    Thanks a lot. Its nice when you are well versed in economics, and it was a clear answer. Well according to Antons source, their reserve has only 120 billion. For the size of Russia this is not enough not to mention for their ambitions to modernize military and colonize south Caucasus again :)

    Thanks again Michel !!!

  9. If the Russian government is so desperate for cash, what could we expect them to do to raise more at home and abroad?

  10. The Putin-mafia are in for some serious problems.

    For labor they have stopped paying

    Wage arrears are growing in Russia

    http://www.robertamsterdam.com/2008/11/rbk_daily_unpaid_wages_accumulating.htm

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