Russian markets have made their steepest drop since October, diving deeper into a correction after investors abandoned emerging markets because of extreme volatility in New York and increasing fears that Greece's debt problems could spread.
The MICEX Index on Friday fell 5.61 percent to 1,288.61, its biggest drop since Oct. 28, leaving the index down 10.27 percent for the week, already deep into correction territory. The RTS saw similar declines, dropping 5.55 percent on Friday to 1,361.91, putting the index down 12.9 percent on the week.
Friday's retreat came after U.S. markets were thrown into turmoil when the Dow Jones Industrial Average lost nearly 1,000 points, before partially recovering and ending the day down 3.2 percent.
The New York Stock Exchange halted electronic trading during the market's plunge with the intent of forcing traders to carry out the exchanges personally, but this channeled most trades onto other electronic exchanges where the decline continued. Investigations have been opened into the cause of the drop, but regulators as of yet have no answers.
The dramatic drop came as concerns mounted that Greece would be unable to make its next debt payment on May 19 and that any default could cause the country's financial crisis to spill over into other euro-zone countries.
The doomsday scenario of a euro-zone default was averted on Sunday, however, when the European Union, the International Monetary Fund and the European Central Bank agreed to a $1 trillion bailout package of loans and guarantees for countries in deep financial straits.
Although Russian markets were closed Monday for the Victory Day holiday, Western markets surged after the bailout package was announced. The Dow was up 4 percent by 12 p.m. on Monday, while London's FTSE 100 finished the day up 5.16 percent.
Despite the fears of Greek contagion, Russia-focused equity funds saw $26 million of net inflows over last week, extending the streak to 12 weeks.
"Even though global markets are in a rout and investor appetite for risk has all but evaporated due to the fear of euro debt contagion and the demise of the euro, there is still relatively good demand for Russian assets," Chris Weafer, chief strategist at UralSib, said in a note Friday. "That is because the price of oil, although well off the high of a week ago, is still proving very resilient to the global turmoil and to the strengthening dollar."
Brent crude for June delivery jumped 3.2 percent on Monday to $80.85 after the announcement of the EU bailout package.
Technical indicators also show that Russian stocks were set for a rebound.
The MICEX's relative strength index, which indicates to what degree increases and decreases in the index outpace each other in a given period, fell to 26.2 on Friday, below the threshold that indicates a rally, according to research by Auerbach Grayson.
The last time the indicator fell below 30, the MICEX gained more than 60 percent in five days, Bloomberg reported.
A Message from The Moscow Times:
Dear readers,
We are facing unprecedented challenges. Russia's Prosecutor General's Office has designated The Moscow Times as an "undesirable" organization, criminalizing our work and putting our staff at risk of prosecution. This follows our earlier unjust labeling as a "foreign agent."
These actions are direct attempts to silence independent journalism in Russia. The authorities claim our work "discredits the decisions of the Russian leadership." We see things differently: we strive to provide accurate, unbiased reporting on Russia.
We, the journalists of The Moscow Times, refuse to be silenced. But to continue our work, we need your help.
Your support, no matter how small, makes a world of difference. If you can, please support us monthly starting from just $2. It's quick to set up, and every contribution makes a significant impact.
By supporting The Moscow Times, you're defending open, independent journalism in the face of repression. Thank you for standing with us.
Remind me later.