Russian Stock Market down 64 percent since July

Even if world governments didn't have the will to punish Russia for invading little Georgia, at least the world financial markets did:

Only a few months ago, Russian financiers and politicians were boasting that Russia was a financial safe haven, apparently immune from the global credit crunch. As recently as June, an International Monetary Fund mission to Russia concluded that "there are no significant negative spillovers from the global financial market turmoil."

The sudden panic shows how several seemingly unrelated events, taken together, can combine to create a potent downward spiral. The first big shock came in late July, when Russian Prime Minister Vladimir Putin made an unexpected public attack on Mechel, a leading steel company, accusing it of price-fixing. An acrimonious shareholder dispute at Anglo-Russian oil company TNK-BP added to market nerves.

Subsequently, both conflicts appear to have been resolved more or less amicably.

But the market hardly noticed, because on Aug. 8, Russia went to war with Georgia. Fearing a new Cold War, foreign portfolio investors took fright, selling the ruble and Russian bonds as well as stocks.

'A Reflex Reaction'

By the beginning of September, says Evgeny Nadorshin, chief economist at Trust Investment Bank in Moscow, the panic had spread from foreigners to locals. Fearing a further slide in the ruble, Russian investors also began piling out of ruble assets. "The times when the dollar was considered a much safer investment aren't that long ago, so many people just had a reflex reaction," he says. . . .