Most Russian stock brokers have plenty of time for a chat these days. The Russian stock market, after booming last year, has fallen into the doldrums.


Wall Street analysts would call it a "major downward correction." The Moscow Times Index has fallen by about 30 percent in dollar terms since its highs late last year. The index is based on quotes given by brokers and as a result it may even understate the fall in prices on actual trades.


Behind the fall in prices is a more significant drop in demand for Russian stocks. Deputy Prime Minister Anatoly Chubais has admitted that the volume of foreign investment flowing into the Russian stock market has fallen from a high of about $500 million in the summer to about $50 million now. The market is being driven down not so much because lots of people are selling their stocks, but because almost nobody is buying.


The reasons for the collapse of interest in Russian stocks are varied and do not have all that much to do with Russia. Many would argue that the biggest problem is not Chechnya but Mexico.


Most of the investment that comes into Russia comes from the pool of money that institutional investors save for so-called emerging markets. In the late '80s and early '90s, Mexico was the preeminent emerging market, a prime example of how investing in a risky developing country could turn big profits. The Mexican government did all the things the IMF said it should and the country boomed.


Over the last month or two, this boom has ended, the Mexican currency has collapsed by almost one third, wiping out huge peso-denominated profits on investments. The currency collapse was followed by an equally disastrous stock-market crash. Emerging market funds lost tens of billions of dollars.


Emerging markets are now out of fashion with institutional investors, and investment is a business where fashion is very important. Emerging markets departments of the big pension funds are being starved of cash and Russia comes right at the bottom of the food chain.


The other reasons for the decline in Russia's stock markets are closer to home. First, of course, comes the war in Chechnya, which, beamed over on CNN ever day, must be frightening pension-fund investment managers back in New York.


Equally important perhaps are the recent signs of uncertainty coming out of the government about the course of reforms, especially the statements by Vladimir Polevanov, the newly appointed chairman of the State Property Committee, who said that foreign ownership of major industries was a threat to national security and that it was time to renationalize the aluminum industry.


Lastly, investors cannot be pleased that the Russian government has done very little to address the urgent infrastructure problems of the Russian securities market. Despite six months of promises, the government has still failed to pass laws on issues such as share registration, custody and information disclosure, which would give investors the basic comfort that they actually legally own shares they have paid for. No legal redress has yet been given for the most outrageous case of expropriation, in which a Western investor was simply written out of the share registry of the Krasnoyarsk Aluminum Factory.


The past week, however, has provided some positive signs.


With the fall of the Presidential Palace in Grozny, the war in Chechnya may start to play a less disruptive role in Russian politics and in Russia's international image.


Equally, this week, after a period of inexplicable vacillation, President Boris Yeltsin and Prime Minister Viktor Chernomyrdin have reaffirmed their commitment to some version of free market reform and to privatization.


At the same time, the renationalizing Polevanov, who hails from the remote Amur province in eastern Siberia, was scolded by Yeltsin as a "man from the periphery" who did not know how to work in the big city.


Equally encouraging is the apparent growth in stature of Anatoly Chubais, the great apostle of the Russian stock market. For example, Chubais has now been given responsibility for the standing committee on the non-payments crisis. This committee has never done anything much and will probably never do anything in the future, but at least the fact that Chubais is now running it shows that he is fancied as the man to be put in the hot seat.


But these subtleties are barely perceptible from New York and London, where most of the investment decisions get made.


Eventually, the big funds will return to the Russian stock market because, despite all the risks, it offers incredible opportunities. Shares in Russian oil companies are priced at a fraction of a percent of shares in Western oil companies with similar proven reserves. No doubt, stock brokers will be working on sales pitches like these in the months to come.





Geoff Winestock is a Moscow-based correspondent for the Journal of Commerce