Investing in Russian stocks is like riding a rollercoaster. The RTS index has slid into bear territory over the past few days, falling by more than 20% – having gained 144% over the previous four months. Before that it had slid by 83%.
What the commentators said
Russia is the world’s second-largest oil exporter and energy stocks dominate the index, so the slide reflects the dip in oil prices as risk appetite has faltered. But “as soon as investors became concerned that the oil-price rise had gone too far, they focused on the risks” in Russia, said Catherine Belton in the FT.
And there are plenty of those. GDP fell by an annual 9.8% in the first quarter and by 11% in May, making a target of an 8% contraction for 2009 seem “heroic”, according to the Economy Ministry. Industrial production shrank by a record 17.1% year-on-year in May, while consumption has plummeted.
The banking system has “all but ceased lending”, said Belton. It has been hit by frozen wholesale funding markets and is now bracing itself for a wave of bad loans.
According to debt ratings agency Moody’s, these comprised 11% of total loans at the beginning of the second quarter and could reach 20%. Citigroup expects profits to slide by 61% in 2009, compared to a 24% drop for emerging markets as a whole.
There’s also the perennial problem of politically-motivated attacks on shareholder rights, said Polya Lesova on Marketwatch.com. Given all this, it may be some time before the Russian market shoots up again.