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Thursday, March 08, 2007

Russian Market Burning Investors Once Again

Dow Jones reported:

Russian stocks fell sharply once again on Monday, weighed down by declines in commodities and Asian stocks, with most emerging markets -- including the other BRIC heavyweights India, China and Brazil -- remaining under heavy selling pressure.

The Russian RTS index recouped some of its early losses, but ended down 3.2% on Monday and is now down 9.6% on the year, making it the worst-performer year- to-date among major global benchmarks together with India. In Mumbai, the benchmark Sensex closed down 3.7%, for a 10% decline on the year.

Tumbling commodity prices, particularly oil and metals, and a rush to reduce global risk exposure are pressuring the Russian market as well as other emerging markets, which tend to have commodity-driven economies. Falling crude oil will likely pressure energy giants such as Gazprom and Lukoil, while declining gold prices might weigh on the country's leading gold producer Polyus Gold.

"Emotions are still running high with the global rout continuing in commodities and in Asian markets," said Al Breach, a Russia-based analyst at UBS Investment Research, in a Monday note. "Look for risk-averse sellers to dominate the flow early as any bullish up-ticks will be met with skepticism."

Besides Russia and India, the other BRIC countries were also selling off on Monday. In China, the Shanghai Composite Index, whose 8.8% fall last Tuesday triggered a global stock-market sell-off, ended down 1.6%, and is now down 4.1% on the year. In Brazil, the Bovespa index fell 1.8% in intraday trade on Monday, and is now down 6.5% on the year.


Raj said...

Are the economies of Russia and Brazil propped by higher commodities prices?

Alex said...

Ultimately, the high commodities prices are bad for Russia as they stifle development in other sectors of the economy. They are equally bad for Russians as the government does not have to rely on the population for taxes instead its getting its money from natural resources, which at best means the general public have much less of say in how the country is run, and at worst the public can just be ignored or oppressed at any whim of the ruling elite. This in the long run leads to unstable country