Russian stocks down 55% in four months

[Wm Holden]

http://online.wsj.com/article/SB122169481775149987.html


The main stock index is down 55% in four months, banks are starved for capital and teetering on the brink, the currency is at a one-year low and the government is throwing money at the problem. We're not talking about Wall Street.

The current carnage on Russian markets comes amid global market turmoil. But the dive in Moscow began before the wider world cared about AIG's balance sheet, and its chief causes are home-grown. To wit, the bill for eight years of Putinism is coming due. And a Kremlin leadership that only weeks ago brimmed with menacing self-confidence is struggling to slow this financial free fall.
[A Run on Russia] AP

The first sign of trouble came in late July when Prime Minister Vladimir Putin lashed out at a Russian coal and steel company, Mechel, for alleged price gouging and appeared to threaten personally its chief executive. Mechel shares fell by a third, and the incident sent a chill through the market as a whole. Investors woke up to the systemic risk to property rights and the lack of any rule of law in Russia. They did so belatedly, we'd add, considering the attempted or successful expropriation of Yukos, BP and Shell assets and the blatant use of state resources to menace private business.

Another trigger was last month's war in the Caucasus. The Russians routed the Georgian army in four days and annexed -- in all but name -- its provinces of South Ossetia and Abkhazia. Then Russia got routed by the global economy. Since the war started, investors have pulled more than $35 billion from Russian markets. Russian businesses are having trouble getting access to international financial markets, as foreign lenders wonder if they can get paid back. Some $45 billion in foreign debt held by Russian corporates must be refinanced by the end of the year, and the cost of doing so is rising.

Other emerging markets have been hit hard in recent weeks, particularly the natural resource-driven economies. But Russia's is the worst performing market in the world this year. The decline from the all-time high in May wiped out $680 billion in value; Russia's entire GDP was just $1,286 billion as of last year. On Tuesday, the main ruble-denominated index was off 11.2%, the steepest fall since the 1998 ruble crisis. It plummeted yesterday as well, before regulators stopped trading for good at midday.

[The_Blur]

This is dangerous. Russia is a very hostile country in terms of foreign policy, and most countries are aware that mass mobilization of defense companies will improve any post-war economy. For this to work, there needs to be a major war for a post-war economy to exist.

[Wm Holden]

truth....