Friday, December 9, 2011

Today's Major Market Move: Russian Equities Decline 7.8% so far in December

It's been a topsy-turvy month so far in global equity markets as there is one knee-jerk reaction after another to each news item coming out of Europe. The biggest moves have occurred in the Russian stock market, where the benchmark RTS Standard Index declined 7.8% and several other Russian equity indexes have seen drops of over 8%. Here's the list of the worst performing equity indexes for December so far:

Click here to go to the live table.

A primary reason for the negative move is the reaction to the recent elections with protests and rumors of foul play. Some more color from Business Week:
Thousands of people have taken to Moscow streets to protest the result of the Dec. 4 parliamentary election, which was marred by complaints of violations and ballot-stuffing. The Solidarity movement, an umbrella opposition group, has planned a rally tomorrow near the Kremlin. Prime Minister Vladimir Putin’s United Russia party lost 12 million votes, or more than a quarter of the support it garnered four years ago. Urals crude, Russia’s chief export blend, hit a two-week low.

“Russian politics has become an issue, and for investors, that’s something new, and for some people, it does create uncertainty,” Martin Diggle, director of the $70 million Vulpes Russian Opportunities Fund, said in a phone interview from Geneva. “Europe remains a drag on stocks, and oil is also down.”
As for the effect on other asset classes, there's been some deterioration in Russian CDS and weakening of the Ruble, but not to the same magnitude as with equities. Since Dec 1, Russian 5 Year CDS have risen 3.8% and the US Dollar / Ruble cross was up 2%. The USDRUB cross is showing the same correlation with Russian equities as what we saw with the Czech Koruna and Czech equities.

Click here to go to the live chart.

Just like with the Koruna, there's hardly any correlation in the first half of the year but then starting in August the directional correlation is very tight. I also wanted to do a comparison of USDEUR and US Equities.

Click here to go to the live chart.

All three comparisons show a similar pattern. In the first half of the year there is light to medium correlation. Then when the big drop in equities occurs at the end of July there is a complete disconnect. After the equity decline, there's a tight correlation (more so directionally vs in magnitude) for the remainder of the year.

We are all currency traders now!

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