Global sentiment suffered another knock as Germany introduced financial restrictions to garner support for a vote on the Greek bailout.
Ahead of a parliamentary vote on the support package, the German coalition agreed on a temporary ban on naked short selling – the process of selling securities without borrowing or owning them – of some shares and credit default swaps.
Russia’s rouble-denominated MICEX index fell 3 per cent on Wednesday as fragile risk appetite suffered as the Euro fell.
The currency has now fallen to 1.24 against the dollar and 38.06 to the rouble, while the oil price dropped below $70 a barrel on Wednesday before recovering back above that mark.
“The Russian stock market is unfortunately dependent on the oil price and it doesn’t look supportive at the moment thanks to the sharp spike in risk aversion,” said Vladimir Kuznetsov, an equities strategist at Unicredit.
Europe’s finances continue to look shaky, in particular Spain and Portugal which saw ratings downgraded last month. Other countries are also reportedly considering following in Germany’s footsteps and introducing a ban on naked short selling while some, such as France, have already prohibited it.
The MICEX is now 13.7 per cent down from its highest close of the year on April 15, and investors are anticipating a bounce following the correction.
“We are due a trading bounce in oil, the euro and equities very soon – and that should be quite sharp – but, beyond that volatility the outlook over the summer is still very negative as the level of nervousness will remain high,” Chris Weafer, chief strategist at Uralsib, wrote in a note to investors.
While the news flow has centred around the restrictions on going short in Germany, a growing contingent is eyeing up long positions in Russia thanks to cheap valuations.
“Sooner or later this risk aversion will subside [but we won’t get] another ‘lifetime opportunity’ to buy stocks as in March 2009,” said Kuznetsov. “[But], the Russian market will be on track for recovery.
It looked cheap before the correction and looks even cheaper now.”
Added to the risk aversion are concerns about the recovery in developed economies, and while this will hit the oil price, it is also encouraging funds to look at emerging markets.
Meanwhile Rosneft bucked the trend gaining 3.8 per cent on Wednesday following comments by company chairman and Deputy Prime Minister Igor Sechin about proposals for changes in the tax regime.