Black Friday

The calendar of “rainy days” for Russian financial markets has been replenished. There have already been “Black Tuesday” and “Black Thursday”. Now it’s Friday, July 25, 2008. Having reached their maximum values ​​on May 19, Russian stock indices began to decline, accelerating from the beginning of June. The protracted decline in shares culminated in a collapse on Friday. During the first hour of trading, the RTS and MICEX indices each lost 4-6%, falling below the psychological levels of 2000 and 1500, respectively—about a quarter lower than in May. “National Treasure” - Gazprom reduced its capitalization by almost 7%, falling below the level reached during the panic sales in January.

Metallurgists, especially Mechel, suffered the most. The day before, the company was sharply criticized by Prime Minister Putin for exporting its products at prices half as low as domestic and world prices. Accordingly, the Russian budget does not receive taxes. The Prime Minister instructed the Federal Antimonopoly Service to deal with the company. The situation was aggravated by the absence at the meeting of the head of Mechel, the main shareholder of the company, Igor Zyuzin, who was invited, but fell ill at the wrong time. “Of course, an illness is an illness, but I think that Igor Vladimirovich should recover as quickly as possible. Otherwise, they will have to send a doctor to him and clean up all these problems,” the prime minister said, giving birth to another “Putinism.” After Putin’s speech, Mechel’s ADRs in New York fell by more than a third, making Zyuzin and other Mechel shareholders $5 billion poorer. On Friday, at the opening of the market in the RTS system, Mechel fell in price by almost half - by 45%.

However, blaming Friday’s collapse solely on Prime Minister Putin’s words, in which some analysts saw an analogy with the beginning of the “YUKOS case,” is not entirely fair. After all, the market has been declining for two months now without any statements from one official or another. There are also quite objective reasons for the fall in quotes. At first, the leaders of the decline were banks, which fell along with the American financial sector. Moreover, in comparison with overseas competitors, the capitalization losses of domestic credit institutions look modest. And then the “oil bubble” began to deflate on world markets, and, as usually happens, oil prices fell at a rate no less high than they had previously risen. The fact that oil, even after a two-week collapse of more than $20, is still expensive, does not reassure anyone. From August 1, new export duties on oil come into effect in Russia, which were calculated taking into account previous growth. And a market decline could significantly affect the profits of oil companies. Moreover, the decline may continue. The US Congress is concerned about the situation in the oil market and is preparing measures to limit access to this market for sovereign funds. Other measures to combat speculators, whom everyone blames for inflating the “bubble,” are also being considered.

Finally, and much more importantly, the slowdown of the world's largest economies has led to a reduction in demand for oil and petroleum products. Gasoline consumption in the US is declining. Many analysts also predict a reduction in demand from China after the Beijing Olympics. The long-running series that the struggle between the British and Russian shareholders of TNK-BP has turned into does not add optimism to investors in the Russian oil and gas sector.

The deeper fundamental reason for the collapse of the Russian stock market lies in the possible change in policy that the American monetary authorities have been pursuing over the past year. High prices and too affordable dollars could not but affect the price level throughout the world. The inflationary wave has also reached the United States. Statistics on consumer and producer prices have some Reserve Bank directors talking about the need to raise rates. Moreover, it is possible that the increase will begin at the next Fed meeting on August 5. This does not mean that the US authorities will not save banks and mortgage agencies affected by the crisis. The government and the Fed will simply move from pumping the economy with cheap money to targeted assistance. A series of rate hikes could begin the opposite of what we have all seen over the past year. The dollar may begin to win back lost positions. And “protective assets” - commodity contracts, precious metals, securities of emerging markets will feel pressure from investors who have again believed in the dollar. Because of this kind of fear, the Russian market fell.

And yet, without, to put it mildly, the Prime Minister’s overly emotional speech addressed to a particular company and its owner, a collapse like Friday’s might not have happened. It would be a good idea for the person who has taken charge of the economy to learn to understand the value of his own words and give up the habit of spouting “Putinisms” that have amused the public so much for the last 8 years. If boorish attacks towards Western journalists entail a maximum of three days of noise in the world media, then the promise to send a doctor to the owner of a large company led to a loss of capitalization of the entire Russian market by tens of billions of dollars.