The Russian Stock Market, back in Freefall
On Monday this week the Russian RTS dollar-denominated equities index took another massive hit, shedding over 6% of its value and dropping precariously close to the 500-point psychological barrier. Gazprom shares were down over 6% like the broader market, oil major LukOil lost even more (over 8%) and Sberbank, the nation’s bedrock financial institution, was down over a stunning 9% in just one day of trading. The RTS-2 index, which excludes the major equities that the Kremlin purchases with foreign currency money to inflate their value, though down less than 3%, did crash through the 500-point barrier to close at a stunning 496. The main RTS index was only slightly above that, closing at just over 531.
The ruble followed suit, plunging to a new historic low of 32.9 to the dollar, down 1.3% against the dollar/euro mix. The Russian currency has lost nearly one-third of the value it had before the August financial crisis began, and had been devalued a stunning 18 separate times since mid-November of last year when its slide was allowed to begin.
The ramifications for Russia’s reserve funds are dire indeed.
All this was carnage accompanied by the announcement of so-called “prime minster” Vladimir Putin that the government would recalculate its budget to expect a price of crude oil of $41/barrel — less than half the amount upon which the prior budgetary assumptions had been based and $6/barrel more than the price oil actually closed at on Monday after an 8% drop (Russia’s inferior Urals blend sells for even less than the world market price). This led government economists to predict a ruble-dollar ratio of 35:1 in 2009, with 13% inflation and up to a 7% budget deficit.
The bloodletting continued on Tuesday. The RTS shed another three points to close below 515, and Sberbank lost another giant chunk of its value, 8% for a total loss of over 17% in just two days. The RTS-2 index was also down over 3% to close near 480.
Now, in addition to struggling to stabilize the ruble (increasingly under pressure due to soaring inflation) and stock market (already on life support), and to provide liquidity to banks on the verge of collapse, Russia’s dwindling FOREX account will be burdened by an actual budget deficit.
It’s difficult to see how Russia as we know it will survive this pressure. The only thing that could save the country from either disintegration or a massive totalitarian crackdown would be a signficant rise in crude oil prices — but to the contrary increasingly bleak spending data from the U.S. market indicates that the price of oil is quite likely to fall, in fact to fall well below the $41 projection that Putin has cavalierly just made.