By Carl Delfeld of Chartwell ETF & Chartwell Partners Asset Management
The fiasco in Georgia is taking a toll on the Russian market and squeezing liquidity as lending tightens and capital flees the politically uncertainty and potentially volatile situation.
Investors pulled their money out of Russia in the wake of the Georgia conflict at the fastest rate since the 1998 rouble crisis, new figures showed on Thursday as reported by Charles Clover of the Financial Times in Moscow..
Russian debt and equity markets have also suffered sharp falls since the conflict began on August 8, with yields on domestic rouble bonds increasing by up to 150 basis points in the last month. This is some risk premium.
The moves come as President Dmitry Medvedev faces pressure from business leaders concerned that the impact of the global credit crisis is being amplified by Russia aggressive stance on Georgia. For example,
Vladimir Potanin, head of Interros, one of Russia’s largest industrial groups, has sought out Mr. Medvedev about the shortage of long-term credit.
The tight credit conditions have been exacerbated by substantial foreign capital flight since the war. Data released by Russia’s central bank showed a drop in foreign currency reserves of just over $16.4bn in the week beginning August 8. This was one of the largest absolute weekly drops in 10 years, according to Ivan Tchakarov at Lehman Brothers.
Mr. Gennady Melikyan, the central bank’s deputy chairman, said the sell-off had been triggered by the “political situation”, adding: “Foreigners are pulling out of some assets and stock markets and the exchange rate has suffered most. I think we have come close to the bottom now.”
The value of the rouble has stayed fairly stable since the start of the conflict but the stock market and the ETF that tracks it, Market Vectors Russia (RSX) has fallen 6.5% since August 7th.
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