Britannia Radio

From The Times

October 18, 2008

Russia taps sovereign fund to save markets

Carl Mortished, World Business Editor

The Russian Government said that it would tap its sovereign wealth fund to buy shares in Russian companies and shore up values in the collapsing Moscow stock markets.

Alexei Kudrin, the Russian Finance Minister, said that the stock market interventions would begin next week, adding that the state would invest 175 billion roubles (£3.9 billion) to buy shares in Russian enterprises.

The Russian share markets have suffered heavily over the recent months of banking crises as wealthy investors have liquidated stock to meet margin calls. Since May, the RTS index has lost more than 70 per cent of its value, and the sell-off continued yesterday despite promises of government cash and a rebound in the oil price. Both the RTS and Micex stock indices continued to lose ground, shedding about 5 per cent, while European markets staged a modest recovery.

Mr Kudrin told the Duma, the lower house of the Russian parliament, that the country’s markets would continue to fall. He said: “Our economy and our market are closely linked to the growing risks in the world economy and to falling oil prices. Today, the risks are rising, as we can see on global bourses. So the market will fall.”

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His comments pushed the market down farther despite a recovery in the price of crude oil, which rose above $70 per barrel to settle at $72. Separately, government sources hinted that there was no justification for lending money to Iceland. Russia had offered a $5 billion (£2.9 billion) loan to the Icelandic Government to help to restore its finances, but the Kremlin apparently was seeking more information.

Leading stocks such as Gazprom, the giant gas utility, have lost three quarters of their value. This year Gazprom was one of the world’s biggest energy companies by market value. After the decline yesterday it was worth $109 billion, roughly equal to Total, the French oil company, and well below BP and Shell. Gazprom is valued at less than a third the market worth of ExxonMobil.