The Dog Days of August for the Russian Stock Market
The Dog Days of Russian August put the Bite on the Russian Stock Market
August is historically a nasty month for Russia. And true to form, in the first ten days of the month this year, the Russian stock market lost a truly breathtaking 20% of its value, plunging from 2000 to 1600 on the dollar-denominated RTS index. The losses were actually far worse than they appeared, because the Kremlin had been feverishly pumping Russia’s precious reserves into the market to artificially inflate demand and limit the damage.
But even worse than the numbers was the reason for them. Julian Rimmer, a broker in Russian shares at CF Global Trading in London, explained: “Russia is entirely hostage to external factors. The only thing which can arrest the decline would be some form of concerted — and simultaneous — central bank policy response. The perceived lethargy and lack of unanimity is extremely damaging.”
“Entirely hostage.” Ouch. “Lethargy.” Double ouch. Nice work there, Mr. Putin!
The New York Times Dealbook reports (note that a group of crazed Russian businessmen thought they could buy off this reporter with a free trip to Russia a la Valdai; it blew up massively right in their faces and we could not be better pleased):
From Matt Marshall at VentureBeat:
Russia is the sixth-largest economy in the world, but it’s also a country relatively untouched by foreign investors, especially investors in technology. Could Russia potentially be the home of the next massive tech boom?
The short answer is: No way. At least not anytime soon. That’s the conclusion I’ve come to after a week in Moscow, a week in which I took part in the first ever delegation of US venture capital investors to visit Russia.
The organizers invited me as the sole member of the U.S. media. (Disclosure: My trip was organized by AmBar, a group of U.S.-based Russian professionals, and paid for by Rusnano, a government investment fund. In return, I promised to write an honest account of what I found.)
The Horror of the Russian Bear Market
On Tuesday this week the price of crude oil fell by 4.4% on concerns about the Spanish economy undermining the global recovery and in response the value of Russia’s stock markets plunged even more, the MICEX ruble-denominated exchange tumbling by a jolting 5.7% and the dollar-denominated RTS exchange plummeting a shocking 6.5%.
The fact that Russian shares fall instantly with the price of oil, but fall to a greater extent than that price, conclusively shows how pathetically dependent that Russian economy as a whole really is on oil, a finite resource that is running out fast. It is the unmistakable harbinger of doom for Russian society, as it is eaten away at its very foundations.
The MICEX has now shed one-fifth of its value since April, and the RTS has done likewise. Four more months like that and the entire Russian bourse would be history.
Encouragingly, there is strong evidence that foreign investors are at last wising up to the horrific dangers of investing in Russia, and are turning their backs on the Putin dictatorship.
A tale of a Russian Bull
Between February and April of this year, as shown in the chart at left, the Russian stock market (here represented by the RTS dollar-denominated index) staged an impressive rally, gaining 20%.
But in the last few weeks, the market has given up every single dollar of that gain, free-falling over 15% in another breathtaking debacle, the kind for which the Russian market has become hilariously infamous. Hilarious, that is, unless you are in that market yourself. Then your emotions are rather different.
A serious crisis in Greece spread to Europe as a bailout was requested, and as traders saw the Western economies losing ground they realized that Western demand for Russian oil cold falter. Since the only real value contained in the Russian stock market is in the form of oil stocks, the bottom dropped out of that market.
The Times the are a-Changin’
The Russian RTS stock index's performance last week
A year or so ago, when the U.S. and Russian stock markets were at historic highs, the ratio between the two was roughly 6:1. The U.S. Dow Jones average was valued at 14,000 while the Russian RTS average was at 2,400.
Times have changed. Both the U.S. and Russian stock markets have suffered debiliating setbacks, but the impact on Russia has been far, far worse. Today, the Dow Jones stands at 7,500 while the RTS is at 500. That means the ratio betwen the two is now on the order of 15:1. The relative size of the U.S. stock market compared to Russia’s has, in other words, increased by more the double following the onset of the global economic slowdown. It now stands in the appropriate ratio given the relative sizes of the two countries’ GDPs.
Jeannette Di Louie, Assistant Editor of Mt. Vernon Research, blogging on iStockAnalyst:
For my final blog of the day, I had a choice to write about Russia’s economic harships or the fact that Hugh Heffner has said that he would be open to selling the Playboy enterprise. Sadly for my mostly male audience, I chose to write about the first topic. However, if you’d like to know more about the potential sale, click here. If not, let’s get down to real business…
When we last discussed Russia, the motherland was doing less than phenomenally. In fact, former President and current Prime Minister Vladimir Putin was starting to feel the weight of a turning tide of public sentiment that was once heavily in his favor.
Putin is Worse than Any Foreign Foe
If Bob Dylan, of all people, can agree to use his music to hawk Pepsi Cola, surely all things are possible, and we live in hope. But we continue to be amazed and disappointed at the failure of the Obama administration to reverse course on Russia. Given the harsh criticism leveled at former U.S. President George Bush by Obama’s supporters, one would think it would be a no-brainer for them to reject Bush’s declaration that Putin was “trusthworthy” after having “looked into his eyes and glimpsed his soul” and start demanding that Putin respect human rights. And yet, Obama remains silent. In doing so, he betrays not only the interests of his own people but also those of the people of Russia, because their government, largely unopposed by Washington, is driving their economy to ruin.