Ben Aris in Berlin -

Last week was black for the Russian stock market. Russian equities plunged from a new all-time high of 1,965 to close Monday at 1736 - falling almost 200 points in a week.

A wicked sell-off in China on February 27, which fell 9% in a day, quickly spread around the world, hitting the US and European markets hard. Analysts were uniform in saying the plunge was caused by a "spike" in risk aversion and mostly agreed there was no real reason for the fall in the Russian market, as nothing in the country's fundamentally strong economic story had changed.

Russia's sell-off was interesting for several reasons. First, it explodes, to an extent, the widely held belief that Russia's stock market is driven by oil prices. The price of a barrel of Brent mix broke through the $60 per barrel in the midst of the stock market drop after having fallen to below $55 per barrel in February.

Second, it highlights how closely intertwined the Russian market's performance has become with the performance of other emerging equity markets.

External factors

Following the initial collapse in China, Russia's leading RTS index dropped by 3.37%, from 1971 to 1901 points, on February 28; then lost 2.5% on Wednesday, closing at 1858 points; and was down 3.29% on Thursday, plummeting to 1797 points. On Friday, the market tried to rally and the index closed largely flat at 1796 points, but the rout resumed Monday with the market selling down to about 1710 before it found some support and rallied to finish at an anaemic 1736.

Analysts say there were no domestic reasons - either macroeconomic or corporate - for the plunge, which was entirely driven by external factors.

As blue chips fell across a broad front, oil and gas stocks posted the worst results over the week, despite the rise of oil prices on commodity markets. Surgutneftegaz lost 10%, Tatneft 7.8%, Gazprom Neft 7.6%, and Gazprom 7.9%. Lukoil's losses were less significant, mainly due to some positive newsflow.

Outside the oil and gas sector, power company United Energy Systems posted the biggest loss, 8.2%. Sberbank, which last week completed placement of shares, lost 5%. Rostelecom and Norilsk Nickel were down about 2%, the latter supported by growing nickel and platinum prices.

The sell-off is a repeat of that in May, when emerging markets around the world fell on fears of a hike in US interest rates. Just as then, analysts are now expecting several months of volatility while investors decide how bad the problems of falling global liquidity are. However, most of the investment banks say that while there could be more selling in the short term, they expect the market to recover in the second half of the year.

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