Apparently, it’s not contagious. In a contrast with 1998, when a financial crisis in Russia spread symptoms through other developing economies, the arrest of Mikhail Khodorkovsky, the head of the oilcompany Yukos, seems to have been quarantined fairly effectively.
While the Russian stock market plunged after the arrest on Oct. 25, and there were some concerns about a broader emerging-market sell-off, those fears have eased among many investors.
Analysts say there have been no signs of the kind of panic that struck in 1998, when the devaluation of the ruble and the country’s debt default were accompanied by a financial crisis in Asia and the collapse of the Long-Term Capital Management hedge fund.
And some investors are still saying that emerging markets are a good place to bet on a recovery in the global economy, which seems to be gathering momentum.
The macro environment for emerging markets is improving and should continue to improve with positive news coming out of the U.S., Robert Davy, a fund manager at Schroders, said in a note to investors.
He pointed out that emerging-market stocks rose 8.5 percent in October, despite a 10 percent drop in the Russian market that mostly came after Khodorkovsky’s arrest.
The gains were led by Asia, where emerging markets rose 10 percent for the month, led by the stocks of exporters and other businesses that generally perform well when an improving economy increases orders. With the economy of the biggest customer for many of those imports, the United States, growing at an annual rate of 7.2 percent in the third quarter, the outlook is indeed brighter, even if that rate seems unsustainable.
But the stock markets in Russia’s East European neighbors also generally managed to escape the fallout from Khodorkovsky’s arrest, in contrast to the ripples that spread throughout the region in 1998.
In Hungary and Poland, stocks rose more than 4 percent in October; in the Czech Republic, they rose almost the same amount. And that may say as much about those countries’ evolving economies as it does about their fraying links to developments in Russia.
Much has changed since 1998, particularly in the Czech Republic and Hungary, which are set to join the European Union next year, along with Poland and seven other countries. Volatility, not just in financial markets but also in economic growth rates, has fallen sharply.
Lending to consumers is booming as they take out mortgages to buy their homes and smaller loans to fill them with furniture and appliances. In the Czech Republic, at least, interest rates are approaching the low levels of Western Europe.
It’s already looking a lot like the EU, Andreas Treichl, chief executive of Erste Bank of Austria, which has a big presence in that country and other Central European markets, said by telephone.
That kind of stability is good news for investors who might have been spooked by the Khodorkovsky crisis. But, at some point, will we have to stop calling some of these countries emerging markets?
