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World markets took a beating last week as problems in several European economies and U.S. jobs data spooked investors, but despite the bad news from abroad, Russian equities are well-poised for recovery.
On Friday, the ruble-denominated MICEX posted its biggest single-day drop in more than two months. The index fell 2.9 percent to 1355.64, which followed a 2.5 percent drop Thursday. All in all, the index lost 4.5 percent for the week.
The dollar-denominated RTS did even worse on Friday, tumbling 3.6 percent to 1411.14, leaving the index down 4.3 percent for the week.
"It's nothing Russia-specific," Vladimir Savov, head of research for Investment Bank, said of the sell-off. That's the case for both big losses and large rallies in general on Moscow's bourses, he added.
Indeed, it appears as though the country's own domestic economic situation is the only thing not affecting its stock markets.
U.S. stocks fell sharply on Thursday, with the Dow Jones Industrial Average losing 2.6 percent and dropping below the 10,000 mark on mounting fears that south European countries — Greece, Portugal and Spain — may not be able to bring their debt levels under control.
The crisis of the moment is in Greece, which has accrued mountainous debt from social-program spending, a condition worsened by a claim from the European Commission that Greece gave false budget data to its public and to the commission. The options for Greece are a bailout by Germany or other better-off European countries, a bailout by the International Monetary Fund or — what would be most traumatic for the European Union — a default on Greece's debt.
Debt pileups in Spain and Portugal also undercut the euro and threatened the economic stability of the European Union, also shaking the markets in Russia last week.
Global markets were also hard-hit toward the end of the week by an unexpected jump in U.S. jobless claims, which rose to a seasonally adjusted 480,000. That fall was tempered, however, on Friday, on a better than expected jobs report that said the U.S. unemployment rate fell to 9.7 percent from 10 percent in December.
Worldwide, investors fled from risk with a huge sell-off of oil, Russia's biggest export. Oil dropped 2.7 percent to $71.19 on Friday on the New York Mercantile Exchange, bringing the total three-day decline for the commodity to 8 percent.
"In global markets, the fundamentals are not that great," said Philip Townsend, head of research and senior analyst with IFC Metropol. Because Russia has small market capitalization — relative to the U.S. or other stock giants — it will be overinfluenced by outside markets, Townsend said.
Despite the contagion spilling over onto Russian equity markets, the country seems to have its own house in order. The government is venturing back into international credit markets with a proposed sovereign eurobond issue just as fears are mounting about the Greek budget crisis and possible default.
And just as the government is in a position to capitalize on its own position of relative fiscal strength, the Russian consumer is well-placed to drive the economy to growth.
Real disposable income grew 1.9 percent in January year on year. Despite the still-high unemployment level of 6.2 million and a 2009 jobless rate averaging 8.4 percent, Russians managed to protect their savings by buying foreign currencies as the ruble was devalued in late 2008 and early 2009, chief economist Vladimir Tikhomirov said. Increased public sector wages and pensions also contributed to the trend.
The disposable-income uptick "is a very important factor that should support the economy going forward," Tikhomirov said.
In the short term, Russian equities are poised to take advantage of the better-than-expected U.S. jobs figures released Friday. American Depositary Receipts of Russian firms trading in New York all gained by the end of the day on Friday, with adding 4.5 percent to its daily low to finish down 1.7 percent and putting on 6.6 percent to close down only 1.7 percent for the day.
And in the medium term, Russia should be able to hold its own — especially as compared with other emerging markets.
"The consensus optimism that Russia is likely to be one of the better investments in 2010 remains intact, and investors are clearly reluctant to sell out of good assets," Chris Weafer, chief strategist at UralSib, said in a note. "Russia’s economy is on a recovery path, assets are amongst the least expensive in the world, and they are underowned by international investment funds."
