The main Russian stock exchanges have been shut down for large parts of Tuesday, as the BBC reports. Yesterday Russian stocks lost around 20% on the RTS and Micex exchanges. Newest legislation passed by the Russian government now dictates that if stock market changes during the day by more than 5%, or by over 10% at market open, trading will be suspended. There used to be a higher threshold of suspending trading.

A Russian Bailout: The Russian president has now annouced that Russia is going to offer a bailout package of $36bn to the largest banks of the country. Unsurprisingly, the largest banks are in trouble.

Why is this necessary? There is rife speculation about why Russia needs to close its stockmarkets during volatile periods. Some see it as typical heavy-handed intervention and meddling – a sign that an incompetent government does not trust its own stock markets to sort itself out. I might have held this view myself 2 weeks ago when this first started happening. However today we see that stock markets around the globe cannot be relied upon due to the totality of the global meltdown. So perhaps the Russians’ response is not so outlandish after all.

Another view was that the Russian government was going to use the markets downtime to find money to buy up troubled firms after the exchanges’ reopening. Critical as one might have been of this intent before, we now see that governments across the world are nationalising all matter of banks in a hurry.

A likely intent is to try and calm investors’ panic. It’s not likely to work with bad news coming out left right and centre at the moment.

Total meltdown: The RTS index has slid by 65% from its high in May 08. This has been the largest fall amongst all of the world’s stockmarkets. This has demonstrated amply that the Russian stock market was just one huge bubble waiting to burst – the economy is in disarray. Some analysts say that Russian “internal factors” (war with Georgia, government’s short-termism and incompetence, falling production of gas, underinvestment into industries to name but a few) are at least 50% to blame for the current collapse.

Carried away: The Russian crisis has been coming for a long time. And same as with all other investors around the globe, no-one expected that the good times would actually end. The point I want to make is that with Russia, the economy was always less sound compared to… well, almost everyone else. And arguably, Russians got carried away with their illusory wealth more than the rest of the world did. Which will make their landing down to earth possibly even harder.

 

Copyright 2008 by CuriouslyInspired.

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