Mosnews.com
www.Mosnews.com
February 28, 2007
Russian Stock Market in Danger After China Tumbledown
Russian stock market is the next in line on Wednesday, Feb. 28, to undergo the test of what’s worth. After Chinese stock market dropped by 9 percent on Tuesday, the suit was followed by the DJIA in the U.S. and by the European stock markets.
Mainland Chinese shares kicked off the carnage, falling nearly 9 per cent amid fears that the authorities were planning a crackdown to cool the market’s exuberance. Traders saw the drop partly as a symptom of broader concerns over global valuations.
U.S. stock indexes on Tuesday suffered their steepest drop since markets reopened following September 11 2001, as global investors fled risky assets after the biggest fall in Chinese shares for a decade. The Dow Jones Industrial Average was down by more than 500 points at one point on Tuesday afternoon as worries about the US subprime mortgage market and a warning from Alan Greenspan, former chairman of the Federal Reserve, about a possible US recession punctured recent market optimism.
European stock markets also sold off, as did higher-risk debt markets. A sharp rise in the yen signaled the beginnings of an unwinding of the global carry trade, in which investors borrow in currencies with low interest rates to buy higher-yielding assets elsewhere. Shares in banks fell sharply.
Russian market analysts say that the global stock market slowdown doesn’t necessarily pose threat to domestic market, but they say that the situation will nonetheless prove to be a test. If developed country investors start pulling money from Chinese market, they are unlikely to bring them to Russia, because such investments would be ineffective under present conditions. Investors are likely to pull their funds back to developed market. Russia may suffer from a certain associated backlash and see some of the more speculative investors take their money off the market as well.
Another threat for the Russian economy posed by the tumbledown of Chinese stock market is that it may lead to slowdown of Chinese economy — and that is sure to have a downward effect on the global oil prices.