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From Roland Nash and Ilya Veller, Director, Renaissance Capital iveller@rencap.com: There are two ways of depicting the recent performance of the Russian stock market. First, it can be described as a 17% collapse, making it the worst seven working day performance since Mr Khodorkovsky’s arrest in October 2003. Or second, it can be viewed as the long awaited ‘healthy correction’ in a bull market which has left the RTS up 38% year-to-date.

We subscribe to the second of these views. Despite the severity of the pull-back, we view the last few days of trading as the ‘healthy correction’ the market has been expecting for the last several months. While there are scenarios under which the correction can turn into a fully-fledged bear market (see below), we do not see any change to Russia’s fundamentals and to the longer term revaluing of Russian assets. There are several reasons why we remain reasonably sanguine.

• Just an average correction. The average drop in the RTS during the seven-year bull market run since 1999 has been 19%. So far the RTS is down only 17%. Moreover, the revaluation since October last year has been among the most dramatic during that seven-year run. It would not, therefore, be surprising to see a pull back of greater severity than in the past, without destroying the integrity of the bull market. In other words, could anybody reasonably expect the recent bull market without the sort of correction we ar......................

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