Why I'm watching Russia
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.
- 1 'Sickening, deluded and unforgivable': Horrific attack brings terror to London’s streets
- 2 Mothers' diets may harm IQs in two-thirds of babies
- 3 Far-right French historian, 78-year-old Dominique Venner, commits suicide in Notre Dame in protest against gay marriage
- 4 Eyewitness Ingrid Loyau-Kennett gives extraordinary account of her confrontation with Woolwich attackers
- 5 Woolwich attack: The EDL might have a sinister plan as a soldier is murdered in suspected Islamic terrorist attack
BMF is the UK’s biggest and best loved outdoor fitness classes
Find out what The Independent's resident travel expert has to say about one of the most beautiful small cities in the world
Win anything from gadgets to five-star holidays on our competitions and offers page.
Day In a Page
A modern home of almost 1,000sq ft is close to Stoke Newington's high street. £499,950
A five-bedroom bungalow in Hoveton with riverside garden and mooring dock, £550,000
A refurbished one-bedroom flat with south-facing reception and high ceilings. £579,950
A four-bedroom Grade II-listed house in Nazeing with large gardens. £550,000
A modern four-bedroom house in a converted stable within walking distance to Peckham Rye. £695,000
Three-bedroom house in a quiet residential area within close distance to Battersea Park. £450,000
A three-bedroom cottage within commuting distance of London, Norwich and Cambridge. £250,000
A two-bedroom cottage with a sun room and gardens in South Chard. £350,000.
A three-bedroom semi-detached house with original features including fireplaces and wooden flooring. £399,950
A modern two-bedroom flat split across two floors and close to several public transport links. £595,000
A one-bedroom flat with an open-plan reception/kitchen and private balcony. £315,000.
A bright two-bedroom garden flat between South Acton and Chiswick Park. £499,950.
A listed four-bedroom farmhouse with stables, set in four acres. £500,000.
A three-storey family home with four bedrooms and an extended kitchen/diner. £995,000.
A three-bedroom Hamstone cottage in the rolling Somerset countryside. £430,000.
A luxury one-bedroom apartment on the first floor of a converted Victorian house. £425,000.