May 17 (Bloomberg) -- Investors are fleeing Russia as demonstrators against President Vladimir Putin dig in, exacerbating the impact of Europe’s debt crisis on the country’s markets, money managers from Frankfurt to Moscow said.
Activists who clashed with police before Putin’s May 7 inauguration are protesting non-stop in Moscow, using the Occupy Wall Street movement’s tactics. As the benchmark RTS equity index entered a bear market, Russia-focused equity funds recorded $251 million of outflows in the seven days to May 9, the most this year, while China lost $127 million, India $148 million and Brazil $167 million, EPFR Global data show.
Tensions have risen as opposition leaders Alexei Navalny and Sergei Udaltsov face potential charges punishable with as much as three years in jail. The threat of a crackdown is intensifying a sell-off in equities, bonds and the ruble sparked by Greece’s possible exit from the euro and the falling price of oil, the country’s chief export, said Zina Psiola, chief executive of Granite Investment in Zurich.
“The protests are just one expression of discontent but money speaks louder than the people on the street as we are seeing with the capital and equity outflows,” Psiola, whose company manages about $90 million including Russian stocks, said in a phone interview.
The dollar-denominated RTS index is the world’s worst-performing major index today, according to data compiled by Bloomberg. The gauge slid as much as 5.1 percent and last traded 3.7 percent lower at 1,323.62 as of 4:54 p.m. in Moscow, pushing this month’s decline to about 17 percent.
The larger ruble-denominated Micex index headed for a bear market, losing 3.9 percent to 1,302.68. The 30-stock index will enter a bear market if it closes under 1,304.92, a 20 percent drop from this year’s March 14 high. OAO Sberbank, the country’s largest lender, tumbled as much as 8.2 percent.
“If we hadn’t had this problem with Greece, the impact of the potential jailing of Navalny on Russian bonds would have been very minimal,” Sergey Dergachev, who helps oversee $8.5 billion in emerging-market funds at Union Investment Privatfonds in Frankfurt, said in an e-mail. “When everything gets worse, investors remember all the political stuff and a vicious selling cycle starts.”
Rule of Law
While Putin has pledged to make the country’s political process more democratic and strengthen the rule of law, an increasing number of Russians are also seeking to move funds out of the country to shield their wealth from his 12-year reign, said Edward Mermelstein, a New York-based attorney who represents Russian investors in the U.S.
Capital flight reached $42 billion for the first four months of 2012, more than half of last year’s $80.5 billion outflow, which was the second-highest level since central bank records began in 1994.
“Putin is going to have problems containing the protests,” Mermelstein said in a telephone interview. “If he doesn’t make the changes he’s promised, he’s going to find it very difficult to justify his presidency.”
Capital outflows are being caused by Russian banks’ needs to meet their creditor obligations in other countries and a move out of emerging markets by global investors, central bank Governor Sergei Ignatiev told lawmakers yesterday.