Stock Market Performance of Russia

Emerging markets such as BRIC countries, Countries in Africa provide an excellent ground to test standard models of the developed markets or explore the specifics of their financial environment. Such models help us in gauging the return one can expect for the attached risk premium. We would like to highlight and discuss the performance of one such emerging market Russia today.

Over the last one year Russian Stock Market is down 22.22% from the levels of 1800 (12-Jan-2011) to the levels of 1400 (10-Jan-2012) as on date. Its down 43.5% from its all time high of 2478 made on 12-May-2008. The markets are still 1000 points away from its all time high. A comparison with Crude Oil charts does reflect a close correlation with Stock Market performance for Russia. As Crude rises its indices go up. With Crude looking to stabilize at around 100$ barrels with most analysts pointing towards the end of the boom in commodities, Russia will have to come up with new economic sectors which attracts investors and enable companies to raise capital through the markets.

Like other emerging markets Russia exhibits High Concentration and Low Liquidity which creates a vacuum when a investor with big position is switching from one stock to another. This is a nature of emerging markets and gets addressed as new companies get listed on the market leading to increase in market cap and offering new opportunities for the investors to gain from the increasing depth.

World Stock Market Performance in 2011

Note: Above returns have been calculated by normalizing the value at 0% at the start of 2011.

Taking a peak at the Stock Market performance for the year 2011 gives us two intriguing facts, First that US markets have been outperforming for last two years when the businesses there have been showing bad signs and employment figures not anywhere convincing. Second that Asia(including Japan) as a basket has under performed in a  big way. 

A cue one can take from the markets is that US has probably had its fair share of returns due to its severe under performance at the time of recession and one can look at Asia given there share of under performance over the last two years. Bounce back from lows is a known fact and while picture is becoming rosy in US with good employment figures doing the rounds, it already priced in by the US markets.

A investor can now look at Japan and Asia in 2012 and expect good returns, while they are expected to under perform in the first 3 months to complete the bottoming out process, good returns can be expected from April on wards.