Russian stockmarket freefall

[wxman]

If you think the US market fall is impressive, just look at what happend in Russia. With oil now expected to drop to near $80 a barrel in the near future, it can only hurt countries that rely heavily on the sale of their commodities to keep their economies afloat.

http://www.themoscowtimes.com/article/600/42/370983.htm
http://www.reuters.com/article/usDollarRpt/idUSN1753316520080917

[Misha]

It is getting worse. On Wednesday, after an hour or two of trading, they closed down trading for the rest of the day after some more major losses. Can we really talk of a stock exchange when it must be closed down every day because the stock prices are in free fall? At what point will the state simply close down the stock market altogether?

So much for the claim that Russia would be a "safe haven" for foreign investors.

[OlgaH]

US economic crisis risks global growth: IMF chief

WASHINGTON (AFP) — The head of the International Monetary Fund Dominique Strauss-Kahn Wednesday warned that the crisis shaking US and global markets posed a potential risk for world economic growth.
http://afp.google.com/article/ALeqM5hb9rUDrXjUS_rVhA1KgjIcMALS6Q

Director and Permanent representative of World bank in Russia Claus Roland: "Russia is prepared very well to stand all the strikes"
http://www.vesti.ru/doc.html?id=209734&cid=1

[viking]

Regardless of the country, the people with deep pockets are not hurting that much. Most of the loss is on paper. And it will return at some point. If they made a few hundred million over the last few years and now they are down to their last 200-300 million, do you really think they will give up their $1000 a night vacation someplace? I doubt it. But the masses of middle class, or poorer, well...got milk?

[OlgaH]

Dow Plunges 450 Points on AIG News
http://money.aol.com/news/articles/_a/bbdp/dow-plunges-450-points-on-aig-news/174090

[wxman]

The big difference is that foreign investment is bailing on Russia, while the other hand, foreign investors are lining up to buy America. A 25% fall since October for the US stock market since October does not have a major impact
on a mature, diverse economy, however it can be devastating for an emerging economy such as Russia which relies heavily on selling oil and natural gas. The US stock market plunge is more related to the financial market, in which the greatest effect will be felt by foreign countries who invested heavily in US financials. China, Russia and the middle east comes to mind. Foreign countries got greedy by thinking they will make a quick buck at the expense of the US consumer by buying up all those housing loans. The world economy is slowing down. That's means less energy will be consumed, which means the price of energy will continue to fall. Russia is basically robbing Peter to pay Paul.  Russia is a bloated bureaucracy that relies heavily on making money off of oil and gas. Political leaders are not sleeping well in Russia tonight as their markets are down 55% since their high.

I will sleep well tonight. Most US investors have not lost a lot of money. In fact, while the US market may be down 25% since October, my investments have increased about 6%. Not great, but in the positive. 

[SANDRO43]

What's the expectation on RW futures? Put or call ?

[wxman]

What's the expectation on RW futures? Put or call ?

Always a good investment!

[Misha]

Russia is a bloated beauracy that relies heavily on making money off of oil and gas.

You forgot to mention that Russia is a corrupt bloated bureaucracy and even though it relies heavily on oil and gas, it has been investing little in maintaining, let alone increasing, production.

[Chicagoguy]

I read that much of the new liquidity the government put forward was quickly grabbed sent out of the country. There are still plenty of "me first" people in Russia.

[roykirk]

For months I had been quietly cursing the relative difficulty for the average American investor to buy stock in Russian companies, especially when I saw what were looking to be some good opportunities.  Now that it's crashing and burning and people are taking their money and going home, I'm glad I stayed out.

[chivo]

Yeah the American market is doing great. Also your insight into Russia is lacking. Me first people are everywhere, especially in America.

Don't compare what happened in 1998 to what's going on now. Oil prices are dropping, but don't be surprised if oil becomes scarce and prices start to rise again...what a coincidence. Here's an article from an American website:

Russia's move into Georgia is just one of the issues that have put its stock market deep into bear territory. That makes this a tempting time for investors to buy in.
The Russian bear came roaring back this summer, rolling tanks into neighboring Georgia and threatening to sink its claws into a fledgling private sector at the expense of foreign shareholders.
Investors did what smart people do when they spot a bear. They tried to get away before the bear turned on them.
Since May, the Russian stock market has fallen 40%.
At these levels, the Russian market looks so, well, bearish that it's a compelling buy. So say Credit Suisse Russian market strategist Vladimir Savov and several money managers who invest there.
To them, at least, investors seem to be overly spooked. Yes, we have real worries:
•   The invasion of Georgia stirred up fears of a revived Cold War led by Russia's zealously nationalistic Vladimir Putin.
•   Putin's government clashed once again this summer with private companies, raising worries about nationalization.
•   A global collapse in commodity prices has hurt Russia's market.
But these money managers and many Russian experts are convinced things aren't as bad as they seem. As the fears ease, money will move back into the Russian market, and Russian stocks will rise. Those investors who get in early will cash in then.
Undervalued stocks in a young market
Portfolio manager John Connor says he recently upped holdings in Russia by 50% to take advantage of the sell-off.
"There are tremendously undervalued positions in Russia," says Connor, whose Third Millennium Russia Fund handily beats its emerging-market benchmark for three- and five-year returns.
It's definitely not too late to join him. The Russian market recently traded for just 7.3 times 2009 earnings, even though earnings are expected to grow 20% next year and the Russian economy is growing about 7% to 8% a year, Savov says. The S&P 500 Index, in contrast, trades for 11.6 times 2009 earnings -- much costlier, by this common gauge of value.
"The current valuations imply scenarios that are so pessimistic they are hardly plausible," Savov says. "Russia is one of the fastest-growing and cheaper emerging markets."
Savov is so bullish that he projects a 70% rebound in the Russian market by the end of the year. That may be overly exuberant, but history is on the side of a rebound.
"Seven out of the last eight years there has been a year-end rally" in Russia, Connors says.
Here's a look at why worries may ease soon -- and some of the ways to buy ahead of the crowd.
The Cold War will stay cold
Few things are as scary for investors as watching tanks roll around on the borders of the countries they invest in. That's what investors got a taste of in early August as Russian forces entered neighboring Georgia to support the breakaway regions of South Ossetia and Abkhazia.
The imagery, and tough talk from the White House brought up fears of a new Cold War.
On the one hand, emboldened by newfound oil wealth, Russia is keen on asserting its security interests in its "near abroad," or what used to be the Soviet Union.
On the opposing side, the U.S. has been aggressively moving missile-defense systems onto the soil of Russia's neighbors. And NATO has been inviting Russia's neighbors to join.
Russia's dust-up with Georgia was "pushback -- the consequence of American policy," says Russia expert Stephen Cohen, who teaches at New York University. "Russia has a zone of privileged interest in the former territories. They are taking back their zone of security."
The U.S. and Georgia would describe the issue much differently, of course. That's why many fear the conflict will heat up and perhaps spill over into other countries, particularly Ukraine. A confrontation over Ukraine could take the U.S. and Russia to the brink of nuclear war, Cohen says.
But an escalation is unlikely, says Stephen Cimbala, a political-science professor at Pennsylvania State University. Here's why:
•   First, Cimbala doubts the Bush administration would push things so far as to risk a crisis during the election season.
•   After that, the next president will be less confrontational -- because both John McCain and Barack Obama have less allegiance to U.S. foreign-policy hardliners.
•   Russia doesn't want a serious confrontation with Europe or the U.S.because it needs trade to maintain economic growth.
Bottom line: The issue may take a while to calm, but tensions between Russia and the West will probably not escalate from here.

No Yukos redux, for now
Twice this summer the Russian government got heavy-handed with companies, bringing back bad memories of Yukos Oil. A few years back, Russia burned minority shareholders by seizing Yukos, allegedly for back taxes.
The first problem was a joint venture to develop energy reserves between BP (BP, news, msgs) and Russian financiers. The joint venture, TNK-BP, got hit by a series of government audits, searches and inspections earlier this summer, as financiers looking to change the terms of the deal apparently won support from the Russian government.
The dispute was resolved last week. Though the British chief of the joint venture will leave, BP will keep its 50% stake. Alex Kantarovich, the head of Russian equity research at JPMorgan Chase (JPM, news, msgs) believes the news should help restore confidence in the Russian market.
Likewise, shares of a big Russian coal company, Mechel (MTL, news, msgs), got hammered in July as Prime Minister Putin accused the company of rigging prices and evading taxes. The investigations that followed spooked investors. But the crisis appears to be over, with Mechel agreeing to charge lower prices to some customers.
No investor wants to see a government dictating prices. But what happened with Mechel probably isn't a sign of more to come. "The questions related to Mechel are limited and resolved, and I don't see widespread price controls," says Christopher Smart of the Pioneer Emerging Markets Fund (PEMFX).
Of course, these incidents are still are a reminder that no company is safe from political risk in Russia, Morningstar (MORN, news, msgs) analyst Imari Love says.

Oil and commodity prices may firm up
Rich in natural resources such as oil, natural gas and metals, Russia is mainly a commodity play to many investors. So as commodity prices have weakened and the dollar has strengthened, investors have bailed out. That's one of the main reasons Russia and other emerging markets linked to commodities have been weak, says Chad Deakins, the portfolio manager at RidgeWorth International Equity Fund (STITX).
But Deakins thinks that in the long run, investors will come back to emerging markets because they'll continue to grow faster than developed markets. And prices for oil and other commodities will probably firm up because the main drivers -- like demand from China and India -- haven't gone away, believes Smart, of the Pioneer Emerging Markets fund. That would help Russian stocks.

Investment plays
Pros such as Deakins caution that it's impossible to call a bottom in the Russian market right now. Commodity prices may fall more before they reverse, and East-West tensions won't disappear overnight.
But for long-term investors with a time horizon of a year or more, moving money into Russia now makes sense because valuations are so low. A simple way to do this is to buy exchange-traded fund Market Vectors Russia (RSX, news, msgs) or the mutual funds mentioned above.
As for individual stocks, to make things simple I'd stick with companies that have American depositary receipts, or ADRs, trading in the U.S. An ADR is a kind of share issued by a U.S. bank that represents ownership of shares of a foreign stock.

2 iPhone plays
Two Russian cell phone companies, Mobile TeleSystems (MBT, news, msgs) and VimpelCom (VIP, news, msgs), will soon be selling iPhones -- which are obviously popular in Russia given the brisk black market for them. Despite iPhones and other positives on the horizon, both companies are cheap.
"They've been pummeled by the recent developments, but they are enjoying dramatic growth and expanding into underserved markets," says Third Millennium Russia Fund's Connor, who is also author of a book on investing in Russia called "Out of the Red: Investment and Capitalism in Russia."
Mobile TeleSystems is the leading mobile operator in Russia. It also has customers in neighboring Ukraine, where it is the second-largest cell phone company, and in other countries near Russia.
Credit Suisse Russian telecom sector analyst Elena Tymchenko expects double-digit annual growth in the medium term, but Mobile TeleSystems is trading at 8.8 times its expected 2009 earnings. She has a price target of $108 a share on the stock, for a potential 66% gain in the medium term. That's a potential 66% gain over the next few years.
Tymchenko expects VimpelCom, the second-largest cell phone company in Russia, to benefit from cost savings and cross-selling synergies from its recent purchase of Russian wire line and broadband company Golden Telecom. She has a price target of $40 a share on this ADR, which recently traded for $22.


2 commodity plays
Shares of coal and steel producer Mechel remain suppressed because of concerns about more government meddling.
But Credit Suisse analyst Semyon Mironov thinks the stock could trade up to $52 in the medium term, from about $22 now.
"The government made a lot of noise that they will be controlling how the company sets prices, but what happened is not that bad," Mironov says.
Connor also thinks Lukoil (LUKOY, news, msgs), Russia's largest private oil company, looks too cheap. The oil giant's stock has fallen to $67 from above $110 in May. Credit Suisse thinks the stock could trade up to $180 over the medium term.
Lukoil has huge reserves in western Siberia, as well as refineries and gas-processing and petrochemical plants.
And though Lukoil has been punished in part because of fears about what the Russian bear will do next, the company may soon get some help from the government. Likely changes around the corner in Russian tax law could boost earnings 10% to 15%.
It's another sign the Russian bear may actually be nicer to investors than a lot of us think. But of course, be careful; it's never entirely safe to play with a bear.


chivo

[roykirk]

Yeah the American market is doing great. Also your insight into Russia is lacking. Me first people are everywhere, especially in America.

Don't compare what happened in 1998 to what's going on now. Oil prices are dropping, but don't be surprised if oil becomes scarce and prices start to rise again...what a coincidence. Here's an article from an American website:


(snip of a whole bunch of stuff)

Of course the American market is in pain, very bad pain for some people.  The big difference, however, is that the American stock market can handle a lot of shedding before there are serious problems for the average investor.  The Russian market is like an epileptic cat, and always has been.  Once it goes down and the foul urine starts spraying and claws come out, anyone in the vicinity is going to get hurt.  And, like the previous poster, I'm still up 10% on my portfolio over the past year, and that takes in to account the correction(s) over the past couple of days.  I'm absolutely "me first."  It has nothing to do with country, it has to do with the fact that it's my money that I worked very hard for that's going to allow me to retire by the time I'm 50 and support a comfortable life style for my family. 

[tim 360]

Some might find this article of interest:
http://money.cnn.com/2008/09/04/news/international/powell_KGB.fortune/index.htm?postversion=2008091008

[wxman]

With a global economy, what emerging markets need more than anything else, money from banks and private investment. The financial crisis is making money hard to find. Banks won't even loan money to other banks right now, much less to companies in emerging economies with questionable practices. If no money comes in from banks, private investors are also less likely to infuse additional monies.  Sure Russia can cover it for now, but at the expense of what? Do they take money from infrastructure to prop up certain businesses, take money from social programs? What about the loss of revenue via taxes from falling oil prices? What if this global recession lasts another 2 years? These are the questions both banks and investors are asking. If they can't be answered, then people will be highly reluctant to invest in emerging markets.

As far as AIG, it really is not a bailout. The US government is loaning them the money at 12% interest. That isn't a bailout, that's a mugging.

[BillyB]

The big difference is that foreign investment is bailing on Russia, while the other hand, foreign investors are lining up to buy America.

Foreign banks are even helping some US companies out of trouble. If certain US companies fail, their own value will drop so the financial help they give will help themselves too. Their business dealings are intertwined with US companies. When in comes to the economy, when America sneezes, the World catches a cold.

The good news is there are highs and lows but the World seems to move forward instead of back and doing more right than wrong. It's a neverending cycle so beware of those who say they have the answer to get your vote. Whoever the next president is in the US will have his highs and lows too when it comes to the economy.

[BC]

As far as AIG, it really is not a bailout. The US government is loaning them the money at 12% interest. That isn't a bailout, that's a mugging.

The decision by the Federal Reserve to loan insurance giant AIG $85 billion in return for as much as 80% ownership of the company is by any measure dramatic. The takeover early last week of Fannie Mae and Freddie Mac represented the culmination of years of intermingling of public and private interests. But the AIG move is de facto a government nationalization of an ailing private company, which, if not unprecedented, has rarely happened in the United States.

http://online.wsj.com/article/SB122169320421449849.html?mod=special_page_campaign2008_mostpop

de facto nationalization.. hmm.. guess there is more than one way to skin a cat.

At least Putin has his eye on those making money instead of losing it..

[Misha]

At least Putin has his eye on those making money instead of losing it..

Well, Russia (Medvedev) has announced that it will be doling out money to boost the Russian stock market ($10+ billion).

[wxman]

http://online.wsj.com/article/SB122169320421449849.html?mod=special_page_campaign2008_mostpop

de facto nationalization.. hmm.. guess there is more than one way to skin a cat.

At least Putin has his eye on those making money instead of losing it..

The US government really does not want to own AIG. I would bet in a few months they will sell it to a private company for an 8% return. The US government doesn't want to be in managing these type of firms and the quicker they can sell it the better. They will take a quick 8% return and some private group will be more than happy to make 12% off of AIG.

[wxman]

Well, Russia (Medvedev) has announced that it will be doling out money to boost the Russian stock market ($10+ billion).

Actually it came out to 20 billion, that's on top of the 1.13 trillion rubles it doled out on wednesday.

[Misha]

Actually it came out to 20 billion, that's on top of the 1.13 trillion rubles it doled out on wednesday.

True, and the untold billions that have already been spent buying dollars to keep the ruble up.

[BC]

True, and the untold billions that have already been spent buying dollars to keep the ruble up.

Mind explaining that?

[Misha]

Mind explaining that?

Sorry, I made a mistake in my post. What I meant to say was that the Russian newspapers have been reporting that these last couple of weeks that the Russian Central Bank has been using its foreign reserves to buy rubles. It has spent billions of dollars to buy rubles (the same rubles that it could simply print for free) in order to stabilize the ruble and prevent the value of the ruble from falling.

[roykirk]

Sorry, I made a mistake in my post. What I meant to say was that the Russian newspapers have been reporting that these last couple of weeks that the Russian Central Bank has been using its foreign reserves to buy rubles. It has spent billions of dollars to buy rubles (the same rubles that it could simply print for free) in order to stabilize the ruble and prevent the value of the ruble from falling.

My God, are you kidding me?  Things are a hell of a lot worse than I thought.  That's a desperation move.   

[Misha]

My God, are you kidding me?  Things are a hell of a lot worse than I thought.  That's a desperation move.   

A few excerpts from the St. Petersburg Times:

"Dealers estimate that the Central Bank sold about $5 billion Thursday and Friday to prop up the ruble, and authorities hammered the message home verbally."

"The Central Bank has so far not allowed the ruble to strengthen beyond 29.26 to the basket, or to weaken beyond 30.41, although it does not disclose its focus corridor."

"The Central Bank bought the equivalent of $100 billion in the first eight months of 2008 to manage the ruble, Ulyukayev said. And with $582.5 billion of foreign exchange and gold reserves as of Sept. 1, it has ample ammunition to support the ruble.

The big reserves mean “there is no risk of any currency crisis in Russia, and the Central Bank will do everything to preserve stability,” Kremlin economic aide Arkady Dvorkovich said Friday at an economics conference in Cernobbio, Italy.

“We do not expect any difficulties, even with the substantial capital outflow we’ve had over the last few weeks."

Source: http://www.sptimesrussia.com/index.php?action_id=2&story_id=27081.

Fortunately, for Russia, they had a lot of foreign dollars in reserve, but if this crisis drags on with decreasing production in oil and gas in Russia and the price of commodities falling drastically, they will run out of dollars (and euros) sooner or later.