Russian stocks roller-coaster while currency slides

An employee of Saint Petersburg Commodity and Stock Exchange. (RIA Novosti/Vadim Zhernov)
The Russian stock market Thursday opened down almost 3% from yesterday’s closing on the back of discouraging news on bond swap measures from the Federal Reserve and US banks rating reduction.

The MICEX stock index slipped rapidly from 3% down on the opening, depleting over 5.9% to 1418 by 2:42pm Moscow time, touching a red line of 1398.32 points on the latest session. The RTS followed the market trend, falling by 6.4% to 1421.5 points over three hours with the market expecting to witness the avalanche of both indices to 1300 points.

Russian equities are down, with the energy sector among the first to feel the burn. Maksim Shashenkov, analyst at Uralsib Capital, believes investors should look to oil and gas stocks while the oil price is still high.

“The oil price will continue to be robust as we saw over the last few weeks. Despite that global turmoil oil prices staying nicely above $100, which means that Russian oil and gas names will probably do better than, probably, domestic names especially if the rouble weakens. I think such positive news on buyback transactions of Norilsk Nickel could somehow support its equities, but otherwise I think there will be a panic sale, a massive sell-off that will hit pretty much everybody as we saw in 2008. There will be no safe haven unfortunately,”

A news update on European debt problems also contributed, shrinking stock indices by 5% encouraging a new currency rally for the dollar and euro against the rouble, which hit new long-term lows as equity markets plummeted, says Elza Bikchurina, senior analyst at IC Solid.

“The morning market decline had a moderate character with a slightly observed tendency to dip, while after the negative statistics from the eurozone the stocks plummeted immediately. Fears of an impending recession coupled with a lack of new cash infusions had an immediate impact and investors accelerated the sell of assets. As for data on new industrial orders in the eurozone, which was the direct catalyst for the collapse, it showed that industrial orders in the eurozone fell in July to 2.1%, deteriorating from the previous month. In June industrial new orders fell 1.2% instead of the previously declared 0.7%,”

Eugene Studenikin, VP of Sales and Operations at BCS, says the markets continue to trade low in shock as the economic situation becomes transparent to all market participants

“In the banking sectors of the US and Europe, the second wave of the crisis is in full swing. Many banks’ quotes are already at, or even below, the levels of the end of 2008-2009, when the crisis was in full swing. In general, it is premature to talk about the second wave of crisis, but if there are a number of corporate bankruptcies, and investors will see the defaults on the obligations of the state of the European countries, we could see a second wave of crisis, involving all sectors of the economy. If the situation with confidence in the banking sector the US and Europe continue to deteriorate and will receive further confirmation of slowdown in the world's leading economies, we can see a strong decline in interest in risky assets, which result in a massive sale of securities on emerging markets, which so far does not look so bad, compared to developed markets. In this case, the Russian indices will drop sharply, and the rouble becomes much cheaper,”