Why I'm watching Russia

So now it is Russia's turn. Sergei Kiriyenko must be regretting catching the eye of his president. His own premiership could turn out to be very short-lived indeed.

Tempting as it is to draw parallels with the Asian crises, the situation in Russia is very different. While speculators gather to bet upon devaluation being forced upon the Russian administration, arguably the rouble is not expensive. Unfortunately, though, the recent record of the Russian government does not look good. The country is in an economic mess and badly needs money in its public coffers.

The failure of the administration to sell off one of its largest state assets, the oil company Rosneft, was the last straw in what has looked to be a steadily deteriorating situation. In the circumstances you cannot blame investors for beating a path to the exit.

Since the beginning of the year the Russian stock market has more than halved. In the past it has been one of the better performing emerging markets, but patience is running out. The country has been subject to considerable disruption following the government's inability to pay public sector wages. Striking miners blocked railway lines, action that cannot have helped an economy already reeling under successive shocks, not the least of which is the very high level of interest rates.

The decision to triple the cost of money to 150 per cent will not have been an easy one to take. Interest rates were raised last week, as it was, from 30 per cent to 50 per cent and the yield on Russian government debt has now topped 80 per cent. Crippling rates like this will damage the economy still further.

But, given that the average man in the street probably has nothing invested in Russia, does it really matter? Unfortunately it does. If devaluation is forced upon the government there could be a knock-on effect around the former states of Eastern Europe. This is certainly what speculators are banking on, expecting a similar situation to develop to that which brought South-east Asia to a shuddering halt following the collapse of the Thai baht. But the case for a devaluation in Russia is far less clear. Aside from anything else, it could unseat the reform programme and lead to further turmoil.

Much will depend on what action the IMF takes. Already camped in Moscow, we can expect to see some fairly impressive numbers bandied about as they endeavour to return stability to the region. But a fighting fund to protect the rouble will have to be big.

What this has exemplified is that emerging markets are still not flavour of the month. With the Korean market at an 11-year low and Eastern Europe looking distinctly rocky, pessimists could soon be turning their attention to Central and South America in the belief that there really is a disease out there and it is very contagious. If that happens, you can kiss goodbye to the global bull market, weight of money or no weight of money.

So, as you can see, what is happening in Russia is of more than passing interest to the rest of us investors committed to the cult of equity. Cheap holidays in Thailand might be enticing but, speaking personally, I shall be quite happy if a trip to St Petersburg costs just as much this autumn as it does now.

Brian Tora is chairman of the Greig Middleton investment strategy committee.