New Worries Push RTS Below 1,000

APA bell is seen at the MICEX exchange during a suspended trading session on Monday. Trading was halted after shares plunged by more than 15 percent.
Trading was halted on both the RTS and MICEX exchanges again on Monday on a combination of bad news from the European banking sector, falling oil prices, the increasing likelihood of a global recession and cash-strapped investors withdrawing from emerging markets.

The MICEX halted trading three times on the way to losing 172.6 points, or 18.7 percent, on the day, while the RTS shut down twice before finishing the day down 204.6 points, or 19.1 percent.

The losses left the RTS more than 130 points below the psychologically important 1,000-point barrier — a point that analysts have suggested would trigger more serious government intervention.

The ruble-denominated MICEX closed for just over an hour at 1:35 p.m. and again at 3:10 p.m. for two hours, before opening for a short, 35-minute session to end the day.

The RTS closed for an hour at 2 p.m. before closing a second time, for the day, at 3:30 p.m.

While the markets opened down on reports over the weekend of trouble at German lender Hypo Real Estate and Belgian bank Fortis, David Aserkoff, chief strategist for Russia at Renaissance Capital, said the losses had more to do with the broader global economic crisis.

"I think what we're seeing today on the Russian market is a reflection of the severe declines we're seeing globally across international markets," Aserkoff said by telephone from London. "What is going on in the stock market is we are moving past fears of a credit crunch and moving toward fear of a 2009 recession."

"We are trading at extremely depressed valuation levels, and for these levels to get any significant rebound we will need to see signs that the world is not falling into recession or signs that the recession we've been in is ending."

Marina Vlasenko, a senior analyst at Commerzbank in Moscow, said stock exchanges in emerging markets, including Russia, are being hit especially hard as cash-strapped investment banks are forced to sell off cheaper securities as a way to increase liquidity.

"Global banks are facing liquidity problems and have to clean the books at any price," she said.

Like the Asian markets, the MICEX and RTS failed to enjoy a bounce after the U.S. House of Representatives approved a $700 billion bailout package after the close of Moscow trading on Friday.

"Investors are treating the Paulson plan as a tricky matter and one which is both necessary but harmful for the economy," Vlasenko said. "This is causing global negative sentiment, and the emerging markets are just hit harder than others because of their natural volatility."

Falling commodities prices generated by concerns over a global recession hit stocks in these sectors especially hard.

Among commodities stocks, metals major Norilsk Nickel was Monday's biggest loser, falling by 32.5 percent and bringing its losses to over 50 percent in two days of trading on the MICEX.

As the world oil price dropped below $90 per barrel, Rosneft shares fell 23.8 percent, LUKoil by 20.5 percent and Gazprom Neft by 20.7 percent on the MICEX for the day.

In the banking sphere, Sberbank lost 16.6 percent, and VTB dropped 26 percent in MICEX trading.

President Dmitry Medvedev, meanwhile, focused on the consolidation in the financial sector occurring in the United States and Europe during a meeting with Alfa Bank co-owner Mikhail Fridman.

"Perhaps we should also buy something before it is too late," Fridman quoted Medvedev as saying during the meeting, Prime-Tass reported.

Igor Yurgens, an adviser to Medvedev and head of the Institute of Contemporary Development, seemed more anxious about the state of investor confidence in Russia, questioning the manner in which the state had thus far administered its $150 billion package to help the Russian financial sector.

"There should be more transparency in terms of how Sberbank, VTB and all the other state banks are pushing money into the system,'' Yurgens said in an interview on Bloomberg Television, adding that political-risk concerns were still hurting Russia's stock exchanges. "Apart from the financial crunch and the credit crunch, we've had that external signal, which was no good after the conflict with Georgia. [Some investors] took it as a new era of the Cold War, which I hope it's not.''

Andrew Somers, head of the American Chamber of Commerce in Moscow, agreed that the state would have to take measures to soothe investors' rattled nerves — especially in clarifying how the bailout package will be administered.

"I think the bailout plan, on the surface, is a good one, as I think the U.S. one is," Somers said. "But in both cases, people are waiting to see what the execution will be. It's fine to announce a plan that sounds good on the surface, but the devil in Russia is always implementation."

Somers also said greater openness on the part of the government would be vital to restoring investor confidence.

"It's not enough for them to do the right thing," he said. "They have to explain why they are doing it and how it's going to help the economy."