Georgia clash makes investors in Russia nervous
— -- Russia's invasion of neighboring Georgia last month was a big hit with a domestic population grown tired of second-class global status in the 17 years since the Soviet Union collapsed.
But investors were less impressed: The Russian stock market has shed 18% of its value since Prime Minister Vladimir Putin sent in the tanks.
The post-invasion drop is part of a broader market decline. Since late May, the benchmark RTS index has lost more than 39% of its value, shaving roughly $500 billion from the value of Russian stocks. That tab is almost equal to Russia's entire stockpile of foreign currency reserves. One sign that foreigners were heading for the exits: Russia saw a $7 billion capital outflow in the first four days after the attack, according to Russian Finance Minister Alexei Kudrin.
"Putin has talked of Moscow as a global financial center and of the ruble as an international reserve currency. This is nothing but jokes now," said Anders Aslund, an expert on the Russian economy at the Peterson Institute for International Economics in Washington, D.C.
Less likely now
Prospects for Russia to be fully integrated into the global trading system also have dimmed. Following the Aug. 8 attack on Georgia, which followed a Georgian strike against separatists in the province of South Ossetia, Western officials discussed possible sanctions, such as denying Russia's bid for World Trade Organization membership. That prompted Putin to publicly disavow his commitments during earlier negotiations and belittle Russia's need for membership, which it first sought in 1993.
Coupled with a series of arbitrary moves by the Russian government against foreign investors, the Georgian incursion raises questions about whether the risks of investing in Russia now outshadow the potential rewards.
"There's a lot of bad news in the price (of Russian stocks). But it all boils down to one question: Does Russia want investment or not?" says Roland Nash, head of research for Moscow-based investment bank Renaissance Capital.
