Moscow, 29 October 1997 (RFE/RL) - Russia's nascent stock market today at noon opened up one percent, signaling that a recovery may lie ahead. But the market still has a long way to go to recover from stunning losses of the past few days.
The market took its sharpest nose-dive ever yesterday, losing 20 percent of its value on the back of a worldwide plunge in stock prices which has rattled investors' nerves.
But a strong rebound on Wall Street is expected to give a boost to the Russian market. The U.S. Dow Jones industrial average bounced back yesterday, closing nearly five percent higher than Monday, when share prices plunged by more than seven percent.
World markets plummeted Tuesday, reacting to the drop on Wall Street and the Hong Kong exchange's record 13 percent dive on yesterday.
The "Moscow Times" index of 50 leading shares fell 20.44 percent to close at 289.36, shedding a staggering $15 billion in value and building on Monday's losses of nearly 8 percent. The dramatic decline happened despite a three-hour suspension on the main Russian Trading System, called for the first time ever in a bid to calm the market. Russian domestic and foreign debt prices also took a battering as investors fled to safe havens in western bond markets.
Russia has been one of the world's hottest emerging markets this year, with share prices rocketing more than 180 percent until turmoil in Asia engulfed global financial markets last week.
The Hong Kong stock exchange has lost more than a third of its value since last week, when a speculative attack on its currency prompted a spike in interest rates. Coming on the heels of market tumbles elsewhere in Asia, the Hong Kong decline has reverberated across the globe, highlighting Russia's integration into world financial markets.
Martin Diggle, director of Brunswick Brokerage, said the crash in the Russian market is "100 percent attributable to the falls in Asian markets and the subsequent fall in the U.S. market. It is absolutely divorced from the economic and political developments in Russia."
Russian officials rushed to calm the market, but their statements failed to halt the downward slide. First Deputy Prime Minister Anatoly Chubais, currently on an official visit to London, expressed confidence Russia would pull out of the crisis but said it could take months, not days.
Chubais said the Russian stock market had exhibited strong growth of 165 percent during the last six months alone, which he said meant it could sustain a 20 percent loss.
"The Russian markets held out for a long time and were the last to fall among the emerging markets," he said.
Chubais dismissed reports he would cut his visit to London short due to the market upheaval, but said Federal Securities Commission chief Dmitry Vasilyev would return to Moscow early. Vasilyev issued a statement late yesterday saying the fall on the Russian market was a direct consequence of the turmoil on world markets. He said Russian market still looks attractive and will rebound in the future.
Central Bank chairman Sergei Dubinin also tried to quiet investors by downplaying the day's losses.
"No dramatic changes have occurred on the securities market and the currency market," he said. "Not a single bank, large or small, suffered as a result of share price variations."
But several analysts speculated that banks could be hurting from the decline in share prices and tumbling prices on the government debt market. Even the ruble was not spared, as an apparent run from Russian treasury bills, known as GKOs, caused the ruble to weaken to 5,923 to the dollar Tuesday from 5,869 in trading on the Moscow Interbank Currency Exchange.
In a sign that the Central Bank remains confident, it went ahead Wednesday with its regular auction of GKOs, despite rising yields on benchmark one-year GKOs which hovered around 22 percent yesterday from roughly 17 percent last week. Russian Eurobonds also took a battering with yields on the government's most recent tranche surging in volatile trading.
Unless the market quickly recovers, the crisis could affect the Russian budget and companies trying to raise capital through share issues. Rory MacFarquhar of the Russian European Center for Economic Policy, said the market crash could affect borrowing at all levels, including the government's efforts to raise money at home and abroad.
With markets around the world unnerved, analysts said Russian market is firmly in the hands of Wall Street, but is poised to gain from any return of investor confidence.
Regardless of what happens, many believe it was healthy for Russia to let off some steam. Tom Adshead, head of research at United Financial Group, said the market correction will force investors to think more carefully about the value of companies, encouraging a more discriminating approach to stock picks.