Sep 15, 2008

Russia's Stock Market Slumps

See, the US has more in common with Russia than people think...

NY Times: Rattled by falling oil prices and the war in Georgia, Russia’s stock market has slumped so severely that it now threatens the country’s oil-fueled boom of recent years, economists say.

The benchmark RTS index has lost 46 percent of its value since its peak in May, representing a paper loss of about $700 billion for Russian companies. Much of that decline has come since the war in Georgia and the subsequent war of words with the United States and Europe that unsettled foreign investors, who began withdrawing capital.

While initially seen as a problem confined to the Russian stock market, which is volatile in the best of times, the drop in share prices is now spilling over to the real economy. Companies that had pledged shares as collateral for loans, for example, are now facing margin calls, bankers in Moscow say.

The underlying problem for the Russian stock market is that about 80 percent of the shares are in companies exporting commodities with a history of boom-bust cycles. Additionally, the risk premium for investing in Russia has risen with the war.

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