MONTREAL - Russia's stock markets, hit hard by declines in world energy and
commodity prices and done no favors by the Kremlin's decision to invade Georgia
last month, are now declining at an even faster pace.
The two main indices, the RTS and the MICEX, continue the steep descent that
they had begun after May 19, well before the invasion (see
Georgia invasion worsens Russian downturn, Asia Times Online, August
22). This plunge has even accelerated. For each index, the rate of decline from
mid-May until the present is now greater than the rate of decline from mid-May
up until the invasion almost five weeks ago. Given that we are talking about a
sustained period of nearly four months, this is almost a phenomenal statistic.
In the first fortnight after the invasion, the RTS's rate of decline, by
comparison with mid-May as the base and up until August 7, itself declined by a
third from 2.3% to 1.4% per week while that of the MICEX increased by half from
2.2% to 3.3%.
However, during the second fortnight (actually two-and-a-half weeks) since
August 7, the rate of decline has accelerated to 6.5% per week for the RTS and
4.8% per week for the MICEX, bringing the average rate of decline for the whole
period since mid-May (computed arithmetically, not exponentially) to 2.5% per
week for the former and 2.4% for the latter. Since May 19, the RTS and MICEX
have respectively lost 40.8% and 39.4% of their value.
In absolute terms, those figures represent the September 9 closes at 1,395 for
the RTS and 1,158 for the MICEX, crashing through the lowest supports of the
trading ranges I identified on August 22, respectively at the 1,800 level and
in the high 1,400s. The RTS is now at a level not seen since June 2006, and the
MICEX since January 2006 (with the exception of the latter's one-day spike down
on June 13, 2006, from which it recovered almost entirely the next day and
thereafter continued rising, never looking back).
The ongoing rout in world energy and commodities accounts for only a part of
this. By comparison with the other most resource-rich country in the Group of
Eight (G-8) leading industrialized countries, Canada's S&P/TSX index, which
also reached an all-time high in mid-May, is down only 18% during the same
period, even with its relative overweight in the hard-hit financial sector. In
Australia, not a G-8 member but still resource-rich and with a recently
weakened national currency, the All Ordinaries index is down only 23% since its
high in November 2007.
Again Russia has shown that its economy and finance have more in common with
Brazil and China - the "BRIC" countries - than with the other G-8 members.
Brazil's Bovespa approaches the magnitude of losses in Russia, down 34.1% since
its own all-time high also in mid-May. But India's BSE Sensex 30 is down only
27.8% since its all-time high in early January of this year, not much different
from Australia.
Yet losses in the Russian equity market are exceeded only in China, which has
been declining over twice as long. The benchmark Shanghai Stock Exchange
Composite (SSEC) is down 64.8% since its all-time high in mid-October 2007.
However, the SSEC has finally collapsed to the 2,100-2,200 range where it is
very tentatively finding some support, having oscillated around that level for
over a year at the beginning of the decade.
The RTS has in the past three weeks crashed through a support in the mid-1,500s
first established in February 2006 and then confirmed three times since then
but only most recently in the early autumn of the same year. Two more supports
from same year, really so minor that they almost do not deserve mention, may be
detected at its present level and around 1,270. In early October 2005, there is
an equally minor support at 1,050. The only level that looks like giving a
substantial backstop is a band in the high 600s ranging up to the low 700s.
Is it really possible for the RTS to fall that low? Russians have a saying,
usually referring to bizarre and unexpected events and encounters, used in
Andrei Tarkovsky's epic 1966 movie Andrei Rublev. Tarkovsky shows the
15th-century iconographer bearing that name giving a guided tour of his work to
the victorious Tatar barbarian on horseback inside the church where Rublev is
painting at the time. On being told the identities of the figures portrayed on
one particular icon, the Tatar replies, "A virgin with a son? In Russia
anything is possible!"
So could the RTS fall to 700? In Russia anything is possible. But the crash of
the late 1990s shows it is no joking matter. The ruble-denominated MICEX has
already burst downward through all of its supports at levels analogous to the
RTS chart that I have just pointed out. Its one-day spike in mid-June 2006 that
I mentioned earlier thrust down to the high 1,100s, not so far from where the
index is now, and with no subsequent movement to indicate that that this local
minimum really signified anything; moreover, also as noted above, the move was
not confirmed by the RTS. The RTS's minor support at 1,050 (off 57.5% from the
all-time high) is represented on the MICEX chart at the 939 level (off 51.8%
from the all-time high).
However, the MICEX support that is congruent with the RTS's backstop around 700
falls by coincidence in the high 600s itself. And the structure is the same,
with modest but strong local maxima in April and October 2004 on a bed of solid
medium-term support, before the subsequent takeoff. But look at this.
Whereas that level would represent a 72.9% drop from the all-time May 2008 high
for the dollar-denominated RTS, for the ruble-denominated MICEX it would be a
decline of 64.3%. Note that this figure is almost exactly identical to the
SSEC's decline from its all-time high to its present level, moreover a figure
which, as I have pointed out elsewhere (see
Darkest week in a year, Asia Times Online, September 6, 2008) is "a
significant figure according to influential schools of wave analysis".
Caveat emptor. Buckle your seatbelt. In Russia anything can happen.
R M Cutler (http://www.robertcutler.org) is a Canadian
international affairs specialist.
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