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Russia's stock market is down by almost 18% since the start of the year as the crisis in Ukraine has developed, hitting a low of 1098.55 on March 21 following the referendum in Crimea that opted for annexation by Russia.

The stock market plunge is reminiscent to the last huge selloff in the autumn of 2008 following the collapse of Lehman Brothers in the US. That saw the RTS fall from its all-time high of 2,487 set on May 18, 2008 to a low of 492 on January 23, 2010. 

That selloff was driven as much by fear as anything fundamentally wrong with Russia's companies. And Sberbank's chief strategist, Kingsmill Bond, argues that the same thing is happening today. 

"1,000 is the new 500," Bond said in a note in the middle of April. "Thanks to five years of decent return on equity and a higher oil price, the book value of the market has nearly doubled since 2008. This implies that, at this oil price, we are close to the valuation trough reached in 2009."

Everyone that follows Russian equities agrees that its stock market is ridiculously cheap, even by Russia's traditionally low standards. However, with Russian troops on maneuvers on Ukraine's border, the fear factor is back. In 2009 the fear was of an imminent global economic collapse (averted by the liberal use of quantitative easing); this time around it is fear of war (that hopefully will be averted by the Geneva accord signed April 17). 

Russia-based analysts believe the market is oversold again. In 2010 as fears of the global meltdown receded, the RTS recovered to 1,500, marking Russia yet again one of the world's best performing markets. If war is avoided and a political compromise between primarily the US and Russia is secured, then the market could again rebound in a similar way. "Stocks trading at a P/E of less than 5 include Gazprom, Lukoil, Gazprom Neft, Aeroflot, LSR Group and state banks," says Bond. "And we expect an annual dividend yield of over 7% for the next couple of years from a wide range of stocks, including KazMunaiGas EP, Bashneft, Kcell and MegaFon." Russian dividend yields remain among the most attractive in emerging markets. 

Still, it will be a while before Russian shares get anywhere hear their May 2008 peak again. The most painful damage done by the Ukraine crisis is the destruction of a fragile trust built up over the last two decades: while the two sides have never really seen eye to eye, no one believed the Kremlin would go as far as putting troops into play again now the Cold War is supposed to be over. 

Bond believes that if peace can be brokered (presumably by German Chancellor Angela Merkel), "We believe that the RTS Index would even then struggle to exceed the pre-crisis level of 1,300, as there are long-term negative consequences for the economy and the market from recent developments."