Russia’s stock market fell sharply, in its largest drop since January, as investors sold resource stocks in response to escalating fears for global growth and the sliding price of oil. Analysts said the market was being forced down as Russian businessmen and funds had to liquidate positions due to margin calls as they were unable to raise cash elsewhere.
An exodus of foreign capital is forcing Russian banks to slash lending as the international reaction to the military standoff with Georgia starts to affect the real economy. Vladimir Putin admitted that foreign capital inflows could fall by up to 45 per cent this year, but rejected suggestions that turmoil in Russia’s financial markets was caused by the conflict in Georgia.
As Russia’s stock market fell another 2.7%, Alexei Kudrin, the finance minister, said Moscow was considering using money from its national wealth fund and pension fund to support financial markets. Western investors are unlikely to pull out but they will demand a higher risk premium. The cost to Russia may be higher than that of invading a small country in the Caucasus.