Exchanges Succumb to Global Downturn

Investors received a nasty shock last week as Russian markets finally succumbed to the downturn on global exchanges, as the RTS posted a five-day slump of 7.7 percent.

In four consecutive days of losses, the benchmark RTS index returned to its November 2007 levels, closing at 2,159.10 points. The MICEX slid 126 points, or 6.6 percent.

Both markets posted their biggest losses Wednesday. By Friday, they had reduced the hemorrhaging, losing just 0.7 percent and 0.95 percent, respectively, on the previous day.

The news from the United States was -- again -- not good. A raft of negative economic reports coupled with disappointing earnings at some Wall Street banks made for dismal reading. A $150 billion rescue plan for the U.S. economy, set out Friday by President George W. Bush, sent shares in the United States into another tailspin, with investors criticizing it as "too little, too late," as evidence mounts that the U.S. economy is headed for, if not already in, recession.

Losses were recorded across the board. London's FTSE 100 slid 4.8 percent for the week, while the Dow Jones index and the Nasdaq both registered five-day losses of 4 percent.

"The Russian market will likely remain focused on external events ... until the [U.S. Federal Reserve] steps in with measures such as heavy rate cuts," said Tom Mundy, equity strategist at Renaissance Capital, in a note to investors Friday.

Among analysts there is a widely held view that many Russian stocks were undervalued -- even before the slump -- after last year's lackluster performance against its emerging market peers. The country's economic outlook, meanwhile, remains robust, underscoring analysts' confidence that there will be a rebound in the near future.

"We have a feeling that we are going to witness a powerful bounce in February, as the current irrational selling in global equities is arrested by easing by the Fed and evidence that growth is keeping its ground outside of the U.S.," Deutsche Bank said in a note.

But for now, there is little to cheer about -- except perhaps for those who are in hunt of a bargain.

Since Monday's close, Gazprom has slumped by almost 10 percent. Oil firms Rosneft and Surgutneftegaz plunged by nearly 8 percent and 8.2 percent, respectively, over the week. Sberbank, the country's largest bank, failed to impress on news that it intends to postpone the listing of Global Depositary Receipts in London to at least the third quarter, dropping nearly 7 percent.

But if there was a glimmer of hope, it was Polyus Gold. Basking in the glow of soaring gold prices, the miner outperformed the market to rise an impressive 6.6 percent.

Its performance was all the more remarkable given the ongoing shareholder spat between one-time partners Mikhail Prokhorov and Vladimir Potanin. Potanin is fiercely resisting efforts by the board to spin off exploration assets into a separate vehicle.

At Norilsk Nickel, which dived by 9 percent last week, the shoe was on the other foot.

Prokhorov's Onexim Group accused Norilsk Nickel's management Friday of diverting resources to support Potanin, namely via a $1.5 billion deposit it lodged in November with VTB, the state-owned lender that then agreed to lend money to back Potanin's bid to buy out Prokhorov's Norilsk stake.

In boardrooms and bourses alike, it has been a memorable week -- if one investors would like to forget.