VZCZCXYZ0013
RR RUEHWEB

DE RUEHMO #0158/01 0221526
ZNR UUUUU ZZH
R 221526Z JAN 08
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC 6236
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS MOSCOW 000158 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EUR/RUS, EEB/IFD 
TREASURY FOR TORGERSON 
 
E.O. 12958: N/A 
TAGS: EFIN ECON RS
SUBJECT: RUSSIAN STOCK MARKETS TUMBLE AMID GLOBAL CONCERN ABOUT 
POSSIBLE U.S. RECESSION 
 
 
¶1.  (U) This message is sensitive but unclassified and not for 
internet distribution. 
 
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Summary 
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¶2.  (U) Russian investors prolonged the downward slide of the 
benchmark RTS Index that began last week.  Although the market 
reported minor gains today, the RTS Index had fallen 15 percent 
since January 14.  Mounting fears of a U.S. recession prompted the 
decline.  Washington's January 18 announcement of a USD 150 billion 
economic stimulus proposal further exacerbated, not eased, these 
fears and, according to our contacts, pushed Russian indices sharply 
lower on January 21.  Observers maintained that the outlook for the 
Russian economy overall remained fundamentally sound.  The drop 
among Russian companies' stock market valuations, however, also 
reflected concern about Russia's integration into the global economy 
comes with a cost.  End Summary. 
 
--------------------------- 
Fear and Loathing in Moscow 
--------------------------- 
 
¶3.  (SBU) Russian investors began selling their stakes in Russian 
firms last week amid growing concerns that the U.S. economy was 
headed for a recession.  As a result, the benchmark RTS Index fell 
6.7 percent.  Alfa Capital Investment Fund Manager Andrei Kilin said 
that, although U.S.-Russia trade and investment links were 
relatively small compared to Russia's bilateral economic 
relationships with European countries, investors recognized that the 
U.S. remained the engine of the global economy.  According to Kilin, 
news of a slowdown in the U.S., the market that accounted for some 
20 percent of all imports worldwide, generated fear that a slowdown 
among emerging market economies could not be far behind. 
 
¶4.  (SBU) However, the week-long selloff in Russian exchanges 
created buy-up opportunities for foreign investors.  General 
Director of the investment firm Investitsiya Aleksei Chalenko said 
that the majority of sell-side trades in the last week were 
initiated by Russian individual and institutional investors. 
Foreign investors, however, saw this as a buying opportunity since 
the Russian economy showed signs of strong consumer demand, stable 
fiscal policy, and growing domestic and foreign direct investment. 
 
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Stimulus Plan Sends Russian Stocks Lower 
---------------------------------------- 
 
¶5.  (SBU) While U.S. exchanges were closed on January 21, Russian 
stock prices continued to fall.  Troika Dialog Strategy Co-Director 
Andrey Kuznetsov attributed the 7.3 percent decline in the benchmark 
RTS on January 21 to a "growing conviction" among investors that the 
U.S. was headed for a recession.  President Bush's announcement of a 
USD 150 billion economic stimulus program on January 18 confirmed 
"how much trouble the U.S. economy was in," according to Kuznetsov. 
The reaction indicated a shift among Russian and global investors 
away from an approach of "pricing in" marginally tighter U.S. 
monetary policy to one of "significant U.S. recession."  (Note: The 
two previous one-day record declines on the RTS were June 13, 2006 - 
a drop of 9.37 percent - in connection with increased U.S. interest 
rates and October 27, 2003 - a drop of 10.06 percent-on the news of 
Mikhail Khodorkovsky's arrest.  End Note.) 
 
¶6.  (SBU) Kuznetsov added that Russia's stock market slump was not 
all psychological.  Russia's commodities-heavy economy contributed 
to the downturn.  In conjunction with a U.S. slowdown, China's 
ongoing monetary and fiscal tightening to bring down rising 
inflation brought to light that "Russia was not immune" from a 
global economic shakeup.  U.S. consumers might not be able to 
provide relief this time, and China might not be able "to grow its 
way out of this one the way it did after in 2001," according to 
Kuznetsov. 
 
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Outlook for 2008 
---------------- 
 
¶7.  (U) Analysts were still bullish in their forecasts for Russian 
stocks in 2008.  MDM Bank Credit Analyst Mikhail Galkin and UralSib 
Head of Equity Research Chris Weafer said the RTS Index could reach 
3,000 by the end of the year, a growth rate of 50 percent.  Alfa 
Capital's Kilin cautioned, however, that further "corrections" may 
still lie ahead.  He said that since January 2000, the Russian 
market suffered 17 corrections of more than 10 percent.  Of those, 
11 were for more than 15 percent, and six for more than 25 percent. 
Therefore, the 15-percent decline since the recent peak of 2,340 
 
seen on January 14 has been relatively modest by historical 
standards.