MaltaToday | 24 August 2008

Mark Lamb - Business | Sunday, 24 August 2008

Beware of the bear

Weekly international investment round up to 22 August 2008

Bears are everywhere. While investors are seeking refuge from the investment ‘bears’ currently clawing away at the global stock markets from China to Dubai the economic repercussions of Russia striking Georgia could be severe and long lasting for the region.
Just as China was preparing to launch the most thrilling opening ceremony in the history of the Olympic Games, Russia started to bombard its tiny neighbour as the dispute over the region of South Ossetia turned into violence.
In investment terms the definition of a ‘bear’ can usually be described as a situation which follows a recent peak where there is a significant decline of more than 20% in a key market index over an extended period of time, for example over two quarters. Putting it another way, it’s when the pessimists out number the optimists and the air of pessimism has certainly not been helped by this crisis in the Caucasus.
Ironically, the bear is the also the symbol of the Russian nation and even a teddy bear named ‘Misha’ was used as the mascot of the 1980 Moscow Olympic Games – boycotted by numerous countries due to their invasion of Afghanistan – and was used at the time as an attempt to soften the Western image of the Russian Bear as a big, brutal and clumsy animal. Even the family name of Russian premier, Dmitry Medvedev, is derived from the Russian word for bear!
While politically Russia may have out-manoeuvred the West through their surprise actions in Georgia, economically they may have made a mistake. Following their attack their main stock market, the Moscow RTS, fell a further 3.6% and according to data from Bloomberg their index is set to become the worst performer out of the world’s 20 largest stock markets for the quarter. Russia’s annual inflation rate of over 15% together with rekindled fears of this former Communist state becoming a pariah nation is fast driving away investors.
However, Russia will continue to exert huge influence due to its control of energy supplies. The country is the world's second biggest exporter of oil after Saudi Arabia and has the world's largest reserves of gas, supplying roughly a quarter of the EU’s gas needs. Russia is also the fourth largest generator of electricity and exports significant quantities to the countries of the former Soviet Union and China.
Prior to the Georgian situation erupting it was hoped that Mr Medvedev’s prior commercial experience as Chairman of Gazprom, Russia’s main gas supplier, would help encourage a greater spirit of co-operation and trade with the outside world but the image of his predecessor Mr Putin seemingly taking control of the dispute will no doubt add to the speculation about who really is in charge of the country.
Russia’s actions are likely to damage a planned agreement with the EU which was set to cover a wide range of issues from free trade to human rights and the backlash will also probably extend to halting their attempts to join the World Trade Organisation.
While its power may have been reasserted this bear may yet wake up with a sore head.

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