Russia Halts Shares as Medvedev Funding Plan Fails to Stem Rout

By Torrey Clark and William Mauldin

Oct. 8 (Bloomberg) -- Russian authorities closed the Micex Stock Exchange for two days as a new $36 billion injection into the banking system by President Dmitry Medvedev failed to halt the country's biggest stock collapse since 1998.

The Micex Index plunged for a sixth day, falling 14 percent to 637.87, the lowest level in more than three years, before trading was halted at 11:05 a.m. in Moscow. The bourse won't open until Oct. 10 unless regulators say otherwise, Micex Chief Executive Officer Alexei Rybnikov said in an interview. The dollar-denominated RTS exchange was shut indefinitely.

The 30-stock Micex Index has lost more than half its value since August, when the five-day war between Russia and Georgia and falling commodity prices caused investors to withdraw about $60 billion, according to BNP Paribas SA data. Russia's government, facing its biggest test since the debt default and ruble devaluation a decade ago, has responded by pledging at least $186 billion in emergency support.


``This time, the government has got plenty of money and the problem is a global one,'' Mark Mobius, executive chairman of Templeton Asset Management Ltd., which manages about $30 billion in emerging market stocks, said in a phone interview today. ``I'm surprised the Russian government is not taking equity stakes in exchange for all this cash they're doling out. In that sense, Russia is acting more capitalistically than the U.S. in all of this.''

Mobius said yesterday he's using the market declines to add to Russian holdings.

Micex

The Russian market at first appeared to be largely immune from the effects of the credit crisis, and the Micex fell only 7.2 percent in the first half of the year, compared with a 12 percent drop for the MSCI World Index. The ruble strengthened to 24.07 to the dollar on July 14, days after crude prices peaked.

Since June 30, the Micex dropped 64 percent, while the ruble weakened to 26.10 to the dollar as crude prices fell, Prime Minister Vladimir Putin attacked coal and steel producer OAO Mechel, Russia sent troops and warplanes into Georgia and quickening inflation contributed to slowing economic growth.

The FTSE Russia IOB Index, a measure of Russian global depositary receipts trading in London, fell 3.1 percent at 10:38 a.m. in London.

Energy companies led the decline today before shares were suspended, with OAO Gazprom, the world's biggest natural-gas producer, falling 17 percent to 116.90 rubles. OAO Rosneft, the biggest oil producer, slid 14 percent to 91.29 rubles, while smaller rival OAO Lukoil dropped 16 percent to 940 rubles.

`Similar to 1998'

``The situation is similar to 1998, but back then companies used their own resources to pull themselves up,'' said Anton Struchenevsky, an economist at Troika Dialog in Moscow. The real sector of the economy is much more dependent on the credit markets now, ``so the restoration of the financial industry will go hand in hand with the real sector,'' he said.

When Putin took over as president on Dec. 31, 1999, he inherited a government that had defaulted on $40 billion of debt and devalued the ruble in August 1998, wiping out millions of people's savings and pushing Russia to the edge of bankruptcy.

Since then, the economy has grown almost 7 percent a year on average, fueled by high oil prices. Now, the prospects for Russia are clouding as crude prices fall on concern of a global economic slowdown. Oil futures have declined 40 percent from the record $147.27 reached July 11. Russia depends on oil and gas for more than two-thirds of its export earnings.

The cost of protecting Russian government debt against default jumped 52 basis points to 352, the highest in at least four years, according to CMA Datavision's credit-default swap prices.

``Most of the Russian blue chips are extremely undervalued,'' Rybnikov said on Bloomberg Television. ``The market will certainly find its bottom at some point.''

To contact the reporter on this story: William Mauldin in Moscow at wmauldin1@bloomberg.net.