Russian trading halted after 12% drop
By Charles Clover and Isabel Gorst in Moscow and Paul J Davies in London
Published: November 12 2008 18:30 | Last updated: November 12 2008 18:30
Russian shares sank sharply on Wednesday before trading was halted as investors digested lower oil prices, uncertainty over the rouble, and worries about the Kremlin’s interference in the economy.
The price of insuring Russian debt soared as credit market sentiment turned dramatically against Russia and some of its leading companies.
Russia’s RTS stock exchange index fell 12.5 per cent in the first three hours of the session before trading was suspended for the rest of the day. Trading was halted on the more liquid Micex stock exchange on Tuesday following a steep slide and it remained closed on Wednesday. Both exchanges are scheduled to reopen on Thursday.
Finance Minister Alexei Kudrin told Russia’s upper house of parliament that the government would be announcing more measures to support the economy, on top of a $200bn bail-out plan already announced. “You will see more support measures for the economy this week. I think we will need to work hard for at least another year,” he said. The Russian economy has been badly hit by the falling price of oil, Russia’s chief export, which has caused a loss of confidence in the rouble.
After using large amounts of foreign exchange reserves defending the currency, the central bank on Tuesday lowered the floor by which it would let the rouble fall 1 per cent against a dollar/euro basket.
Central bank chairman Sergei Ignatiev signalled it might allow the rate to fall further, saying the bank would allow more “flexibility” in the rouble exchange rate.
Analysts said the rouble was a significant factor in the stock slide, but also blamed a dispute over Uralkali, Russia's biggest fertiliser company. On Monday the Kremlin reopened an investigation into an accident at a potash mine two years ago, raising fears that the company was the target of a politically-motivated campaign.
Uralkali said it would face “an enormous financial burden” if forced to pay damages for a flood at the mine – .an incident for which it has previously been cleared of blame. Its share price has fallen sharply since Monday.
Chris Weafer, chief of strategy for Uralsib investment bank in Moscow, said investors fear the state is using the credit crunch to target attractive companies for takeover. “There is a real fear that elements in the state will use the debt crisis to extend their reach, to take over more assets,” Mr Weafer said.
The erosion in confidence has hit Russian debt markets as well. The cost of protecting Russia’s debt against default leapt by 172 bp to 786.2bp on Wednesday, meaning it now costs €172,000 ($216,000) annually to insure €10m of the country’s bonds over five years. |
