Russian market crash
Today's Financial News - Posted October 13, 2008
With Russian markets crashing to the lowest point in over a decade. They even suspended trading indefinitely last Friday. Will the Russian Bear recover? If so, how soon? Is now the time for investors to move in a grab the bargains? Martin Hutchinson of the Money Map Report gives TFN viewers his take.
by Laura Cadden
Baltimore (TFN): Just this week Russian markets have suffered their worst single day loss in 13 years. Is there still a bottom to come? Should investors avoid Russia for now? Or with stocks diving 20 percent is it time to shop for quick and significant bargains.
I’ve invited Martin Hutchinson of the Money Map Report to help us with these questions. Welcome back to the show, Martin. What do you think is the root cause of Russia’s financial meltdown?
Martin Hutchinson: I think like a lot of places it was in a bubble before it started. The oil price went to $147 and the people that run Russia multiplied 147 by the number of barrels they were producing and said yippee, we’re rich. I think a lot of the Russian people said that as well and obviously the Russian stock market said that.
But Russia is really a one-commodity economy these days, and with oil having gone from $147 to somewhere in the $80s, inevitably they’ve lost a lot of money in terms of export revenues, in terms of domestic economy and so that caused the stock market to crash. It’s now down about 60 percent from their peak.
Laura Cadden: What about their political maneuverings? Do you think they’ve played a part?
Martin Hutchinson: Well that certainly caused a crash in August when they invaded Georgia or sent troops into Georgia; whatever they did.
And I think the other problem is Russia is that you can’t be sure about Russian property rights. They really don’t have property rights. You get the company Ukas where the chairman was sent off to Siberia ‘cause Mr. Putin didn’t like him and it was actually the best run oil company in Russia.
You’ve got a problem where there aren’t good property rights. Investors aren’t happy and they shouldn’t be happy and the institutional investors haven’t been putting money in Russia and have been taking money out since August.
So I think for retail investors it’s a very risky proposition indeed.
Laura Cadden: Speaking of oil and commodities, where do you think they’re going to be heading by year’s end let’s say? Do you think they’ll continue to descend?
Martin Hutchinson: I would suspect they probably will. I mean the West is pumping money into every economy it can find with all the central banks lowering rates and obviously that’s going to tend to slow the decline, but I think you’ll probably see oil and commodities continue downwards because we’re clearly going into a fairly deep recession and that will stop demand for oil and commodities, both from the West and also from the emerging markets like China.
Russia is in real trouble because it’s a one-product economy. If the price of the product goes down then they will feel the pinch and they haven’t had this problem before. I mean in the 1990’s oil was permanently low and so they were trying to do something else. Then since 2000 its been bonanza time.
Laura Cadden: So do you think there is opportunity there for investors? Is there any stocks you would recommend people to load up on?
Martin Hutchinson: I’ve been nervous about Russia in general because I don’t like the fact that it doesn’t have good property rights. I don’t like the fact that the government’s not only a dictatorship. You can make money under dictatorships, but it’s a dictatorship that’s very, very difficult to predict and it’s a dictatorship that doesn’t I think understand the way the free market works.
So even if you had a really good successful Russian company that was doing something that made sense you could never be entirely sure that the government wouldn’t see it and decide to seize a piece of it in one way or another and that I think’s a bad recipe for investing.
It’s a pity, but there are a lot of bargains around now with everything down. So even though Russia’s down more than most I think you’re taking more risks than you should if you go there.
Laura Cadden: Thank you so much for your perspective. To learn more about Martin’s investment research service, The Money Map Report, go to www.moneymorning.com.
Last Week’s Top TFN Video:
Laura Cadden interviews Karim Rahemtulla on how to invest in times of financial upheaval.
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