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.
Russia — What kind of Country?
After 2 pm on New Year’s eve, those whose hobby is following the activity of the Russian stock market will have to find a new way to amuse themselves for a while. The markets will shut down at that time and they will not reopen, per Kremlin order, until Sunday — yes, Sunday — January 11th.
Just what kind of crazy “country” are we dealing with here, anyway?
You might think that ten days is an absurdly long time to shut down the national economy, but in fact for Russians it’s not nearly enough. Last Wednesday the Moscow Times reported:
With investors preparing for the holidays and many international funds closed until January, Russia’s equity markets look set for a quiet last two weeks. But the state may also seek to use the Christmas lull to buy up domestic equities as a consolation boost to finish out 2008. The state’s main bailout vehicle, Vneshekonombank, or VEB, will likely take advantage of the low trading volume on the MICEX and RTS exchanges in the coming days to prop up prices, analysts said, which could mitigate — if briefly — what has been a particularly dismal year for Russian stocks.
So the Russians need two weeks to prepare for ten days of binge drinking and doing even less than usual, and the Kremlin is planning to take advantage of this pre-lull miasma to invade and manipulate the stock market, driving its prices up artificially so as to create the illusion of an end-of–year uptick. Ironically, even the MT itself is affected, and won’t publish another issue during Russia’s national orgy of drinking. Its next outing will not come until January 12th.
There’s only one word for all of this, and that words is: Yikes!
The Russian Stock Market, Speaking in Tongues
- The RTS stock index on 12/3/08
The image at left shows the performance of the dollar-denominated RTS stock exchange on Wednesday December 3, 2008.
Though the market lost only 13 points from the opening bell, this represented nearly 2.5% of the exchange’s total value, a stunning fact emphasized by the market being driven close to the critical 600 point psychological barrier, which it has already crashed through on a previous occasion. Gazprom and Sberbank, the two leading Russian companies, were down well beyond the market average, 4.8% and 3.8% respectively. The consumer and retail index was down even more, nearly 8%. The MICEX ruble-denominated index suffered a similar loss. On Tuesday, the losses were even more staggering, and the market was once again shut down to staunch the bloodletting, making about three dozen such occurences since the August crisis began.
It seems we now need a new vocabulary with which to discuss the Russian stock markets, which appear to be speaking in tongues. Saying that the market suffered “only” a 2.5% trading loss would not mean much in any other country, but in Russia these days such losses would be sufficient to run the market all the way into the ground. Now, the Russian market has a “good” day whenever a full trading session is executed without the market but summarily shut down in panic by regulators.
Meanwhile, the market would have fallen even further were it not for the relentless buying by the Kremlin itself to inflate the market’s value, just as the Kremlin is doing with the ruble. As the Kremlin slowly becomes the sole owner of shares, and the price of oil — the Kremlin’s only real asset — dips shockingly below $40/barrel, it really can no longer be said that a stock market exists in Putin’s Russia. In the same way, it can’t be said that elections exist, or high offices of government.
There is only Putin.
Putin goes Potty
So, get this.
At a government meeting this past Monday, Russian “prime minister” Vladimir Putin said that it was “some kind of ugly thing, absolutely unfair” that the Russian stock market had lost 80% of its value in the past eight months because “decisions concerning which securities to buy or sell on Russian markets are, for the most part, made abroad. Moreover, the criteria by which these decisions are made have very little connection to the actual state of our economy or Russian companies.”
James Beadle of Pilgrim Asset Managment couldn’t quite agree. Beadle stated: “Russia’s situation has been, as we know, worse than most emerging markets. I put that down to the weak economic environment, the political risk and a lack of domestic investors.” Russia should have plenty of domestic investors, of course, given Putin’s claims of having raised the national income so dramatically. But it doesn’t, because in fact most of Russia’s oil windfall has been hoarded in the hands of a wealthy few, people who are now terrified to invest because Putin’s crazy forieign and domestic policies have left the nation without any sound economic fundamentals to lean on.
Comrade Putin’s remarks are, in other words, completely insane on two entirely different levels.
The Russian Financial Well, Running Dry
It takes some doing to keep up with the financial meltdown that has been wrought in Russia by the misguided policies of the nation’s dictator, Vladimir Putin.
At the end of the week, Reuters reported that the Putin regime had squandered a breathtaking $58 billion in September and October alone defending the value of the Russian ruble. Another $14 billion had been washed down the rathole of the regime’s efforts to bail out its corrupt and decrepit banking system, bringing the total to a stunning $72 billion before even considering the vast undisclosed amounts being spent to prop up the crippled stock market, or the unknown expenditures that have already occurred in November. $72 billion is roughly 15% of Russia’s total foreign exchange reserve fund, meaning that another year of this kind of spending would wipe out the fund entirely, assuming nothing was spent either on the stock market or economic growth and nothing was needed to compensate for budgetary deficits. None of those assumptions are remotely valid. Russia is on the fast track to bankruptcy, just like the USSR faced not long ago.
According to Reuters: “Finance Minister Alexei Kudrin told the parliament Russia has spent 90 billion roubles ($3.28 billion) on domestic stock and bond purchases so far this year out of the planned 250 billion roubles. ‘As of today, 18 percent of the national wealth fund has been placed on the local market,’ Kudrin said.”
Even “President” Dima Medvedev admitted that things were getting ugly. He stated: “Today, it is clear that the crisis is spreading, unfortunately from the financial sector into the sectors of the real economy. Every industry is affected in its own way. It is impossible to say that one among them is sitting pretty and will not get state money.” So much for the insane Russophile canard that the stock market does not affect real Russians! The old Russian problem of unpaid wages is again front and center, with a 33% increase in arrearages in the month of October.
And then there was the stock market. These days, its exploits read like a cheap dimestore novel than the records of a major bourse.
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 MICEX in freefall
The Russian stock market is back in freefall. For the second straight day, the dollar-denominated RTS exchange was shut down to stop horrific financial bloodletting, this time after less than half a day’s trading had taken place. The index plunged by over 4.5% and was artificially halted at noon Moscow time at the shocking value of 577. Mighty Gazprom’s shares were down nearly 6% as the price of oil continued to plummet precipitously. Once again the Russian market, supposedly a “leader” among emerging economies and “insulated” by fossil fuels from world market vagaries, bore the brunt of world losses and was easily out-performed by nations like Poland.