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. Last Updated: 07/27/2016

Markets Weather Opening Tumble

Russian stock markets suffered a shock Monday with the deepest opening drop of markets anywhere on worries that a global recession would hit the country's commodity-based economy.

The ruble-denominated MICEX index plunged in early trading as much as 6.7 percent, later rallying in the evening to end the day down 3.3 percent. The dollar-denominated RTS fell as much as 5.5 percent, later losing 3.7 percent on the day.

A raft of other emerging-market indexes -- in India, Taiwan, Malaysia, the Philippines and Poland -- all lost more than 3 percent Monday

Moscow banks and fund managers appeared to take the losses in stride, saying Russian stocks would weather the global volatility and advising clients to keep faith in the country.

Losses were hardest in the oil, gas and mining sectors. Gazprom lost 4.1 percent, after falling as much as 8.5 percent, while No. 4 oil producer Surgutneftegaz lost 5.7 percent, after falling as much as 8.7 percent. The country's biggest oil producer, LUKoil, lost 2.5 percent after falling as much as 6.9 percent.

In a note to investors Monday, Alfa Bank warned that Gazprom "looks to be one of the most vulnerable of the blue chips because of strategy concerns" and "because it is the most liquid, cheapest and easiest of all the global emerging market stocks to 'short' as an asset-class insurance."

Other losers included the world's biggest nickel producer, Norilsk Nickel, which fell 6.6 percent in early trading, later rallying to end the day down 3.5 percent.

National power utility Unified Energy Systems, whose plans to spin off its main subsidiaries have come under close scrutiny from investors, fell as much as 7.5 percent, before ending the day 4.8 percent down.

Sberbank shares fell 5.8 percent by noon, below the 89,000 rubles ($3,394) at which the bank placed shares worth $8.8 billion last month. The bank later recovered to end the day down 0.45 percent at 90,931 rubles.

Speaking to reporters in Singapore, Economic Development and Trade Minister German Gref sought to reassure investors, advising them not to pull out of the Sberbank share offering at the last moment.

"There are no serious reasons not to complete the Sberbank deal," he said, Reuters reported. "The share placement has, in effect, happened. Investors have made a commitment to pay."

Gref also told reporters: "There is no reason to dump Russian shares."

Alfa Bank warned in its note that a 30 percent drop like the one suffered by emerging markets last summer was possible, depending to a large extent on how U.S. investors react to HSBC Bank's writing off of $11 billion of bad debts in the U.S. mortgage market.

Other analysts said they could not rule out such a drop, but said it was unlikely.

"The bulk of the damage has been done by now," said Ian Hague, lead manager at Firebird Management, which oversees almost $3 billion in emerging markets, particularly the former Soviet Union and Eastern Europe.

Alex Kantarovich, chief strategist at MDM Bank, said that while a 30 percent drop could not be ruled out, if it happened, "it wouldn't be the end of the world."

The stock market's current downward drive is part of one of the emerging markets' periodic retreats, he said.

Hague said the drop was "very healthy" and part of a global correction of equities, which had been growing very rapidly in recent months.

Al Breach, research director at UBS, said all the evidence pointed to the last week's slide being a correction of the kind regularly occurring in emerging markets.

The current crisis is foreign-made and not due to domestic problems, he said, adding: "It's not a Russia story."

A 9 percent drop on the Shanghai stock exchange last Tuesday, following reports that the Chinese leadership was planning steps to slow down the country's economy, sent markets worldwide spiraling down.

Jitters about the U.S. economy came after comments by former Federal Reserve chairman Alan Greenspan that a recession was possible later this year.

In such a period of uncertainty and risk, Alfa Bank said, investors may be tempted to pull out of risk assets "regardless of local fundamentals."

If panic entices short-term investors to sell their Russian stocks, this is completely due to global events and not to Russian weaknesses, Breach said.

Russian fundamentals remain sound, with commodity prices likely to stay strong, and the last thing long-term investors want to do now is to sell, he said.

But Hague said Russia has attracted a lot of "tourists," investors who are not dedicated to Russia for the long haul, who might be tempted to sell now.