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Russian capital markets: Full of value or close to collapse?

In the past few months the Russian capital markets have been hit by a rush of selling as spooked investors head for the exit, sending valuations into free fall. Guy Norton reports from Moscow on what lies in store.

Marx to market solutions

NEVER LET IT be said that investors in Russia are short of a memorable turn of phrase when it comes to describing one of the most eventful markets. "The last few months have been like a Marxist’s wet dream – the rich have been absolutely decimated," says James Fenkner, managing director and founder of Red Star Asset Management. He adds: "The more money you had at the start of this crisis, the less you have now." Red Star is one of a legion of small hedge funds that have found the past months a traumatic experience as they’ve watched asset prices that have taken years to increase seemingly evaporate into the ether as investors have pushed the panic button and exited the Russian capital markets.

By early December the benchmark RTS Russian equities index was down by about 75% and still trending lower. Julia Bushueva, head of strategy at UniCredit Aton, points out that Russia is now the bargain basement option among the Bric (Brazil, Russia, India and China) emerging markets. "Russia is trading at a 60% discount to the next cheapest market, Brazil, and the entire Russian market has a smaller market cap than Exxon Mobil," she says.

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