The current economic instability seen around the globe suggests that another major crisis may break out in the near future. According Elliot’s wave theory, another wave of the crisis should start in 2015-2017. However, today we can see the eurozone crisis escalating. Russia’s economy oriented toward exporting energy carriers is at risk as well.
Can Russia Initiate Another Major Crisis?
According to , the Russian stock market lost 15% in early May. It is about to hit the 2-year low. The market declined on lower oil prices and poor economic performance in the USA.
5 years later, the Russian stock market is still below the levels seen in 2006. It suggests that there is no positive dynamics. Russian stocks usually act as leading indicators predicting crises as there are few investors who are willing to buy Russian stocks during a downtrend. The situation with European and US stocks is different.
S&P500 went 15% down from the 3-years high. The Russian stock market lost over 50%.
According to pessimistic forecast, Russia will start feeling the pressure of another major crisis after a major commodity market collapse (including crude oil). Since early May 2012, the Russian Ruble has already lost 4.5% against the currency basket and 7% against the US Dollar. Some pessimists anticipate a major collapse down to $25-35/b.
Despite the global criticism, the Russian authorities fell optimistic and say the country is ready for another global crisis. However, the Russian economy is still too dependent on the export of crude oil and natural gas.
The strengthening of the US dollar is an early sign of the forthcoming crisis. The Euro currency started depreciating against the US dollar after Greece started seriously considering the possibility of leaving the eurozone. At the same time, the entire global financial system is under the threat of collapsing.
Why Do Investors Flee Stocks?
According to , globalization has made all the markets around the globe over-dependent on each other. A major rally or downtrend of a major index instantly influences the stock markets of most countries around the globe.
Even though Russia’s stock market is one of the world’s 20 biggest markets in terms of capitalization, foreign investments account for a big share of this market because foreign investors strive to diversify risks by investing in emerging fast-growing economies.
Another peculiarity of the Russian stock market is the fact that it is mainly represented by oil-and gas and banking sectors. That is why major changes in these 2 industries have a considerable impact on the entire market.
If to consider the fact that oil prices haven’t shown significant growth over the last 12 months while the US and European banking sectors are not in perfect shape (the eurozone crisis, various scandals etc.), we can conclude that the Russian stock market has no grounds for a major rally.
Now let’s have a look at the events of May 6th 2010 (the so called “flash crash”), when the US stock market initiated a big-scale sharp collapse, by that time, the Russian stock market had been declining for 3 weeks. By the way, it started recovering much earlier than the US market.
The bottom line: Russia’s stock market is not subject to artificial economic stimulation like in the US one. Therefore, it shows the real state of affairs in the global economy and can be used as a leading indicator to anticipate another major crisis.
Market Leader and would appreciate if you could participate in a survey. Please, visit the Academy’s forum for traders and investors and answer the following question:
Do you think Russia’s stock market can help us to anticipate a major crisis?
