With Moscow’s stock markets plunging into their worst trading since Russia’s 1998 economic and political collapse — values are down roughly two-thirds from May’s oil-fuelled all-time highs, virtually halving over the past 10 trading days — Russians want to know: ”Why us?”
That feeling may partly come from the defensive national psyche, but many in the country are puzzled because they feel their system is free of the credit crunch and toxic debt issues that have smashed Western markets.
What cannot be denied, however, is that the ”open” and ”closed” signs at Moscow’s two stock exchanges, Micex (where most trading takes place) and RTS (more seen as the economic benchmark), flip faster than a spun coin, leading to what Maxim Osadchiy, chief analyst at Moscow-based Antanta Pioglobal investment bank, describes as ”chaos”.
Why has Russia’s stock market plunged faster and further than the Dow or the FTSE? Partly that it soared on the back of the spring-time speculative oil price surge and partly on political fears — Russians feel hurt that the West does not understand why they invaded Georgia or appreciate their side of the TNK-BP oil row. And there are worries over how Russian companies will refinance debt.
But in Moscow, the belief is that the sell-off reflects the fears of Western portfolio managers, who are getting rid of perceivedly risky emerging-market stocks first — and many Russians believe that it represents a buying opportunity rather than a need to panic.
Arkady Dvorkovich, an aide to President Dmitry Medvedev and a former aide to Prime Minister Vladimir Putin, argues that Russia is not in crisis. He points to a $1-trillion infrastructure plan and, while admitting relations with the West are at their lowest for a decade, causing international investors to flee, he believes that there ”is the potential to restart relationships”.
He adds: ”This is not like 10 years ago when the economy was not functioning, we had no foreign exchange reserves and no one knew where their next meal would come from. Despite the falls of the past weeks, the market is still more than three times as high as a decade ago, we have $500-billion in foreign-exchange reserves and our dependence on oil and gas is far less than the West thinks.”
But he admits: ”It’s going to be far more difficult to get new money into the market via IPOs. Companies still want to come to Russia and we don’t believe they will change their plans. At governmental level, we are prepared for one to two years of turbulence, after which we expect private investors and foreign money to start to return.”
Like the government, he believes ”getting rid of some smaller banks will be healthy, as many do little more than launder money. There is no real risk of a bank run; we are increasing deposit protection from $17 000 to $28 000, covering 97% of retail deposits.”
Major Russian companies say low prices will give scope for share buy-backs. Oil and gas major Lukoil says it has a $3-billion scheme to buy back 1,4-billion shares over three years. Its shares have been trading as low as three times expected 2009 earnings.
It believes too many investors see its value as a direct correlation to the oil price, ignoring complex tax rules where the state takes a large slice of increasing prices. ”Our exploration and production is very profitable even if oil falls to $65 a barrel,” it says.
Marina Akopian, a partner at London-based emerging markets boutique Hexam Capital (a joint venture with Resolution Asset Management) says: ”Prices bear little or no relation to results, with sellers getting rid indiscriminately of winners and losers.”
She cites potash producer UralKali, whose share price is down about 70% over three months despite first-half revenue growth of 114% and net income up 261% year-on-year.
”The plunge would not have been so steep had the government done some more explaining,” says Igor Yurgens, head of government relations at Renaissance Capital, Russia’s largest privately owned investment bank. ”It needs to be more open about its medium- and long-term strategy — if it has one.”
But this is Russia and the politics of defence are never far away. Yurgens’s biggest fear is a United States election result that will lead to more hard-liners in Washington.
”If Nato offers quick accession to Ukraine in December, there could be big trouble, making the current Georgia problem seem like a joke. We have this power, though we don’t want to use it. But if there is no anti-Russian provocation, I expect the markets to start rising gently by Christmas.” — guardian.co.uk