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market news by nicholas ford
This suggests that the Russian government is willing to support the market using some of its huge currency reserves potentially insulating it from a downturn. Whilst this might not be deemed essential for a country whose index is heavily weighted toward well supported energy stocks, it could be a source of reassurance for the emerging market investor. In addition it brings up the whole subject of government intervention in the markets.
In the UK, we have all heard about the Chancellor of the Exchequer’s periodic forays into the currency market to support the pound, usually disastrous affairs, throwing away billions as the world gambles against him. Supporting stockmarket’s is considerably easier than supporting a currency however. The numbers involved are usually smaller. The Japanese have dabbled with some success and Hong Kong supported its market in the late 1990’s creating a fund which it then sold on to investors when confidence returned. Large scale intervention and hence state manipulation of stockmarket’s would be disruptive and would possibly breach the regulatory structure of many countries with mature economies. We are not at this stage yet but it is surely only a matter of time.
We have been recommending investment in Eastern European markets for several years now and participating investors have picked up some decent gains. Despite other political concerns on the future leader of the country, provided oil prices remain high, investors should take confidence from the Russian government’s enthusiasm for its domestic stockmarket.