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17 Jan, 2008 09:18

U.S. crisis cannot drag down Russian market

Global stock markets are nervously eyeing further signs of economic recession in the United States, in the wake of rising inflationary pressure and big write downs from banks on sub prime related investments.

Thursday is seeing the RTS and Micex in Moscow both falling further after shedding more than 4% on Wednesday. However, analysts are seeing a brighter outlook for Russian stocks.

Increasing signs of America slipping into recession, and further bad news from the world's largest banks have combined to send another tremor through the world’s volatile stock markets.

This week has seen Citigroup and JP Morgan add their write offs to the sub prime crisis, and post losses or significantly reduced profits. Write downs on the crisis now total more than $US 70 billion from banks across the U.S., Europe and Asia.

This comes as evidence mounts that the U.S. economy has slowed, with some saying it is already in recession.

“America faces a serious problem. The demand for new housing in the States can weaken further, as well as consumer demand. This will slow down the U.S. economy which is called a recession,” predicted Oleg Viyugin, chairman of board of MDM Bank.

The Russian stock market fell 6% on Wednesday and opened down on Thursday, with traders selling off. Analysts say that with the U.S. market weakening, even the generally strong Russian market will follow the trend, along with other world markets. An added factor this week for local markets is oil easing back towards 90 dollars per barrel.

However specialists say that in the longer term the prospects for the Russian markets are favourable and strong growth is likely this year.

“I think Russia looks like one of the best markets in the world. It really is a safe haven given what is happening in the rest of the world. Russia has very strong economic growth and has got a lot of money coming to the country still.

It has got a lot of liquidity when the rest of the world does not have that much liquidity. Stocks are not that expensive as it underperformed a little bit last year. Commodity prices are higher. So if you put all these things together – Russia looks pretty strong,” said Roland Nash, head of research at Renaissance Capital, Moscow.

Aleksey Rybnikov, the General Director of Russia's largest stock exchange MICEX, has told Russia Today that although investors are being buffetted, he expects growth to continue in the Russian market.

“The Russian market is currently following this spiral downwards but everybody hopes that given the state of the Russian economy,  the robustness of the Russian economy and the fact that it's growing fast and growing healthily that this year will be another good year for the Russian capital markets,” he said.

“Maybe the growth will not be as fast as in the past but at the end of the day capital markets are the reflection of the state of the economy. If we expect the economy to continue to grow – which is the overall view on Russia today – then of course the capital markets will follow, and I think investors will realise that too.”

Analysts are still expecting the RTS to reach the 3000 mark this year. They are looking towards domestic plays as strong investment into Russia’s booming infrastructure and consumer industries outweighs a weakening global environment.

“We've seen it last year, the main effect was though capital outflows from Russia. These capital outflows from Russia on the part of foreign investors has led to lower levels of liquidity on Russian markets and that certainly had a negative effect on the performance of stock market but Russia still is vulnerable to the problems of the world economy but less so than the than other emerging markets because it has so strong macro economically,” analyzed Yaroslav Lissovolik, chief economist at Deutsche Bank Moscow.