RTS Has Toughest Week Since '99

Trading on the dollar-denominated RTS exchange was suspended three times on Friday as anxiety deepened over whether the U.S. House of Representatives would pass a $700 billion financial sector bailout package and share prices on Russian and international markets plummeted.

By the end of trading Friday, the RTS had fallen to 1,070.9 points, down 7 percent for the day and 17 percent for the week — its largest weekly retreat since January 1999, the tail end of Russia's 1998 economic meltdown.

On the ruble-denominated MICEX Index, shares slid 5.3 percent on Friday, to 924.6 points. The index fell midday, bottoming out at 904.2 points at 4:30 p.m., before staging a minor recovery.

Energy and raw materials stocks were some of the hardest hit on both indexes, and in a note to investors Renaissance Capital cited oil companies Gazprom and LUKoil and metals company Norilsk Nickel as the market's worst performing shares.

LUKoil dropped 3.2 percent on MICEX on Friday, and Gazprom lost 5.8 percent. Norilsk, meanwhile, plunged 18.2 percent on MICEX.

The shares mirrored the fall of the price of crude oil, which declined 11 percent during the trading week, and commodities as a whole, which fell by 10 percent — the largest fall since 1956, according to the Reuters/Jefferies CRB Index of 19 raw materials.

James Beadle, director of Pilgrim Asset Management, said broad economic concerns were behind the fall in commodities prices.

"There's an acute short-term fear about the global economy," Beadle said. "A lot of people are questioning global growth, and commodities are the first thing to suffer."

While Russian markets will reopen on Monday with the knowledge that the House of Representatives followed the Senate's lead by approving the financial bailout program on Friday, it will still likely be a while before the money produces any significant results.

James Fenkner, director of Red Star Asset Management, said that it might take weeks for the funds from the aid package to reach international markets and that it was unlikely to have much effect on Russian investor confidence.

"I haven't seen sentiment this bad on the market since 1998," Fenkner said. "Stock prices have just collapsed, and everyone's thinking it's going to go further."

Both Fenkner and Chris Weafer, chief strategist at UralSib, cited the lack of lending among banks as one of the chief roadblocks to recovery on the markets.

"The trial is yet to come over the next few months," Weafer said in an e-mailed response to questions. "Investors still fear the threat of further defaults, and that is almost paralyzing activity in the banking system and, in turn, the general global economy."

The government has thus far injected $180 billion into the national economy, including $50 billion that has been allocated for distribution by Vneshekonombank, the state-owned development bank.

Weafer said that while risk aversion related to banks would continue as a brake on any market rebound this week, the $50 billion injection would at least allay fears regarding the safety of state-owned companies.

"We should see a bounce on Monday," he said. "But it will be a limited bounce and most likely led by the state-company shares — Sberbank, VTB and Gazprom in particular," which have the "implied state safety net."

If the state feels there is a need to prop up the market, Weafer said it might dip into the $20 billion allocated for market support as soon as the RTS level hits 1,000 points — a mere 70 points away from Friday's closing figure.

"If the aftermath of [the market crash of] 1987 is a precedent, we can expect very nervous investors and depressed markets until year-end," Weafer said.