The Russian stock market has had a rough go of it since its peak in the first half of 2011. As you can see in the chart below since that time it has been in a severe downtrend and has lost more than 50% of its value.
Not only has the Russian stock market been negatively impacted by the breakout in US dollar strength (see chart below) as have most other non-dollar denominated assets but also been piled on by two other significant events. The first being the fact that since their economy is mostly energy based, the massive decline in energy prices (gasoline, oil, heating oil, natural gas, etc) of late are shrinking exports. This combined with the geopolitical fallout of the Crimea and Ukraine debacle (and the resulting outcome/punishment of economic sanctions) is having a toxic effect on their economy and driving away outside investors.
The uber bearish head and shoulders pattern that formed this year has played out to its projected target this week. As one who is interested in undervalued assets the Russian stock market is currently very attractively priced and represents a compelling value right here when compared to most other world indexes. In spite of this positive development and my desire to buy things at a discount, until the negative geopolitical and energy trend forces are resolved, this is a market one should avoid at all costs. It is not unreasonable to think that it could again touch its 2008-09 low around 10 which would be another 50% decline from here. My biggest fear is that it would not be unreasonable that if these developments continue without some sort of relief, Mr Putin may be forced to act in desperation to save his country and people. There is only so many times you can poke an angry dog before it retaliates. Lets hope it can end constructively for all parties.
