Wednesday, September 17, 2008

Russian Markets in Free Fall

Russian Exchanges Remain Closed a Second Day September 18, 2008 The New York Times MOSCOW — The Russian government will inject up to $20 billion into domestic stocks in an effort to halt the free fall of the Russian stock markets, President Dmitri A. Medvedev said Thursday, in the most direct effort yet to use oil profits to ease a deepening stock market crisis here. The two main Russian stock exchanges remained closed Thursday after authorities halted trading Wednesday afternoon. By that time, they had each lost about 57 percent since their peaks in May — the steepest fall of any major stock market since the current financial crisis erupted from Wall Street. In addition to fallout from turmoil in New York and declining oil prices, the Russian market has been weakened by poor corporate governance standards here and investor concerns about a breach in relations with the West after the war in Georgia. But unlike the American financial institutions that were bought up or declared bankruptcy this week, Russia has plenty of capital. The question is whether injecting some of it into the stock market will be enough to restore investor confidence — or whether it will be perceived as a sign of official desperation and perhaps even reason to flee Russian securities. Authorities used the market holiday to unveil measures intended to restore confidence in what had been until this year one of the world’s best-performing emerging markets. Under the plan, the government will directly invest 250 billion rubles, or about $10 billion, in domestic stocks in an effort to raise prices, Aleksei L. Kudrin, the finance minister said, according to Interfax. If that is not enough to stave off a market collapse, the government will amend the budget to free up another 250 billion rubles for investment. Eventually, he said, the government will seek to resell the shares for a profit if markets rise. Until then, Russian taxpayers will effectively hold them. The plan mimicked an effort by the government of Hong Kong to invest directly in the local stock exchange during the so-called Asian contagion of the late 1990s, when many Asian markets plunged more than 60 percent. In that case, the Hong Kong government later bundled its investments into a fund that made a profit as the market rebounded. The Russian government also announced lower oil export tariffs than had been expected, a move that should increase investor interest in energy companies. The tariff will be lowered on Oct. 1 to $50.70 a barrel, as opposed to the $66.20 a barrel that was expected. The government had set oil tariffs based on average prices in previous months. Under the adjustment, the government used only the sharply reduced oil prices of the first weeks of September to calculate the tariff, according to an investor note from Citibank. Also on Thursday, three Russian banks that had been given access to $44 billion in government money said the capital would be made available to other banks and brokerage companies investing in the stock exchanges. The measures underlined an assessment offered by the International Monetary Fund that the Russian economy has “buffers” that should prevent a repeat of the 1998 financial crisis here. “Over all, the macroeconomic situation remains strong and the country will maintain a current-account surplus even with lower oil prices,” a fund spokesman, David Hawley, told a news conference in Washington. In one positive sign, some Russian company shares that are traded as global depository receipts in London and New York rose on Thursday. Mr. Kudrin, the finance minister, said markets would reopen Friday morning.
They think this is going to work, heh, closing the markets down for a day and a half? Bwwwwaaaaahhhhh!!!!

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