Russian Stock market woes

Stock markets around the world took another hit today as the financial crisis rolls on and governments seek to bring some stability t the system. Most of us rightly are concerned about the performance of bans and the system in our own countries and in the US. Yet while the headlines have been largely about the US, UK and continental Europe the Russian stock market ( Moscow RTS or Russian Trading system) has been taking a real hammering.

So whats going on with the Russian stoock market given that they weren't seemingly much involved in sub-prime lending?

Trouble for the Moscow RTS really started with the Russian invasion of Georgia which proved to be a significant blow for investor confidence. Fears that Russia was moving back to a much more dictatorial style shook investor confidence and through June July and August of this year the Moscow RTS fell from highs approaching 2500 to under 2000.

Since August however the rot has really set in and on a number of occasions the Russians have had to close the market because of the speed and size of the falls. Today the market was closed twice because of major falls. The Moscow RTS fell almost 16% today to a low of around 903. Put it another way - the Russian market has lost over half its value since August. Today's one day fall is almost three times the hit taken by most other markets and must indicate substantial difficulties ahead for the Russian market if it continues to bleed value like this.

It doesn't take an economist to guess what might be behind these major falls and the withdrawal of capital from the Russian market.

If investors see Russia as ruled by an authoritarian government then there will be some fear that such a government could take extreme actions which might at some stage prevent investors liquidating their investments. In the face of this no doubt some investors are deciding to get out rather than risk this happening.

Secondly the Russian economy is at this time neither a major producer of consumer goods or one of the biggest producers of consumer goods. The strength of the Russian economy , such as it is, is in part built on exports of core commodities such as gas and oil. Another fear will be that as the west slips into recession demand for these will be suppressed at a time when western governments might just decide to inject demand into their economies by for example investing in alternative fuels etc.

In short the falls in the Russian market may simply be due to investors seeing uncertainty everywhere and concluding that the last place they want to tie up their cash is in an authoritarian country which might just decide to keep it and not give it back.