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16 Sep, 2008 19:00

Russian stock markets plummet

Russia’s major stock exchanges, the RTS and the MICEX, suspended all trade for an hour on Tuesday after indices took a dive. The fall reflects events on Wall Street, where share prices have plunged largely due to the fourth largest American investment ban

If the American stock market is going down, it’s taking everybody with it. The Moscow Interbank Currency Exchange (MICEX) saw its worst ever day, plunging 17% on Tuesday.

Three months ago the Russian Trading System’s dollar-dominated index hit record highs – along with the oil price. Now the RTS has fallen by half and oil is down one third.

“I believe China is the worst performing in the world. Ukraine is right up there. But investors have certainly noticed the u-turn the Russian market has taken in the second half,” says Erik Depoy, Alfa-Bank equity strategist.

Of the BRIC emerging markets, China, is down 60%, Russia is down 50, and Brazil and India around 25%.

“A lot of other countries in the world are very envious of Russia's very strong fiscal position, the budget surplus and so on. But the financial markets are a very different story. And again, the fact that Russia was performing so well in the first half is a recognition of this,” Depoy says.

Central banks around the world have pumped money into the financial system, led by the U.S. Federal Reserve with $US 50 billion. Russia allotted US $19 billion to the Russian markets on Tuesday, with more planned for Wednesday.

“I think Russia's relatively well positioned because although it’s right at the bottom its now also by far the cheapest so if there's a rebound one could assume that Russia will come up really fast,” says Tom Mundy, equity strategist at Renaissance Capital.

As bad as the situation may look, there is a silver lining. This latest sell-off shows Russia is now closely integrated in the world's financial system.