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14 Sep, 2008 01:04

Stockmarket tracks commodities

Recent geopolitical concerns have caused some investors to pull out of Russia, leading to a sell off in the stock market, and difficulties for corporate raising funds. However analysts point to falling commodity prices as a bigger factor, and say more pri

After two years of an investment boom throughout Russia – this year looks like a different story. Capital investment in the first half of 2008 has grown by 14 per cent, compared to twenty percent last year.

Although the recent geopolitical issues were the prime cause of investors taking fright recently, other long term factors are affecting the markets in the longer term according to David Aserkoff, Chief Economist at Renaissance Capital.

“If you look at the stockmarket, its certainly down quite a bit. And there are I think two key reasons.  The first reason that a lot of people talk about, is about Georgia, its about Mechel, its about TNK-BP.  But fundamentally the biggest problem for the stockmarket over the last few months has been the decline in global markets, and especially commodity prices and oil.”

Whilst the conflict in South Ossetia did influence the energy sector, commodity prices worldwide have continued to fall. Analysts say the lack of long-term investment will result in a slow down in infrastructure development in Russia.

Long term capital is vital for infrastructure projects like road links, communication networks and railways. Evgeny Nadorshin, Chief Economist at Trustbank, agrees but is looking for more private sector involvement.

“We need a significant improvement in our infrastructure, but I would prefer that it is done with help of private businesses, not with the help of only government investment.”

The Russian government is taking supportive measures to sustain economic growth and to revitalise the markets.  But many think that what Russia really needs is better private public partnerships and better financial instruments for raising long term capital.