Russian stock markets have been having a bad time in the last several weeks. The benchmark RTS Index dropped 25 percent from an all-time high of 1,766 points on May 6. The worst day came on Monday this week, when Russian markets lost about $62.6 billion in value, the RTS falling to 1,318 points, a 9 percent tumble. Russia’s energy companies were not spared in the sell-off. Gazprom, the state-owned natural gas monopoly and Russia’s largest company by market capitalization, lost 12.5% of its value, while oil companies LUKoil and Surgutneftegaz lost 8.8 % and 11.1% respectively, and UES, the electrical monopoly, lost 9%.
The losses make May the second worst month in the history of the RTS. The worst month was April 2004 when the market fell 34% on news that the government was investigating Yukos, formerly the country’s largest private oil company, on charges of tax evasion.
Market analysts blame the losses on two factors: 1) rising global interest rates (particularly in the US and Western Europe) and 2) the US-Iran standoff. Both have motivated western investors to look for less risk and motivated a sell-off of stocks in emerging markets. (India’s stock market lost 10% of its value last week.)
Despite higher interest rates, Russia’s markets are likely to rebound on the strength of its energy sector. Continued high energy prices will entice western investment in Russian markets. However, the vigor with which they do so may be undermined by the global instability fueled by worries over Iran. Ironically, Russia has contributed to the problem. Pursuing a foreign policy intended to maintain high energy prices by keeping trouble spots simmering, it has undermined western efforts to impose meaningful sanctions on Tehran.
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