Russia’s stock market fell sharply on Friday to its lowest in over two years as investors sold resource stocks in response to escalating fears for global growth and the sliding price of oil.
“The market has decided that global growth is rolling over and that means all cyclicals get hit from emerging markets to commodities. The hope that Chinese industrialisation would sustain growth has faded,” said Kingsmill Bond, chief strategist at Russian investment bank Troika Dialogue.
The weakening in the oil price in recent days is the latest blow for Russian equities that have been hammered by the war between Russia and Georgia and gnawing concerns about political interference in Russian corporate governance.
Metals stocks led the declines, with Norilsk Nickel falling 9.6 per cent to 3834.09 roubles -- posting its biggest intraday drop since it was listed on the Micex exchange. Steel maker Magnitogorsk dived 8.9 per cent to 20.51 roubles
“The global move away from equities generally, as the US economy weakens and demand slows, has hurt Russia, as a commodity exporter,” said Tom Mundy, Moscow-based equities strategist at Renaissance Capital.
The rouble-denominated Micex index fell as much a 9 per cent before closing 3.7 per cent down to 1,234.71. Meanwhile, the dollar-denominated RTS index fell 3.8 per cent to 1,469.15. The RTS index is down almost 40 per cent this year and posted a weekly drop of 11 per cent.
A perception of an increase in political risk as a result of the tensions in the Caucasus has also weighed on the stock market, said Mr Mundy.
The Russian central bank has been forced to intervene heavily to support the rouble, as jittery investors have withdrawn their money. Banks stocks declined on investor concern that the rouble’s plight will accelerate inflation, slowing down Russia’s economic growth. State-owned VTB bank sank 7.9 per cent to 0.51 kopeks, a record low.
However, on Friday the rouble strengthened against its euro/dollar basket after Alexei Ulyukayev, first deputy chairman of the Central Bank of Russia, said the bank was not planning to widen the corridor in which the Russian currency trades.
The central bank manages the rouble against a basket of 55 per cent dollars and 45 per cent euros.
Although not officially confirmed, the central bank was widely believed to have sold up to $4.5bn to support the rouble on Thursday after it hit a low of 30.41 against the basket.
The rouble edged higher on Friday after Mr Ulukayev’s comments to stand at 30.32.