Tags: Russia | stock | crisis | 1998

Is Russian Crisis Warning of a Stock Market Crash?

By    |   Friday, 19 Dec 2014 08:22 AM

In 1998, Russia's financial woes triggered a stock market crash, and many investors are worried that we could see a repeat of that scenario. However, this time is different and Russia is unlikely to be the cause of a crash in 2015.

Russia is a small economy with a GDP of just $2 trillion in 2013. That is about 3.4 percent of the global economy. Russia's economy is less than one-eighth the size of the U.S. economy.

It was also a small economy in 1998, but at that time the world was in the midst of a yearlong economic crisis. Countries in Asia had been devaluing their currencies. One hedge fund, Long Term Capital Management, was highly leveraged and betting that volatility in the markets would quickly subside. By the time Russia devalued its currency, LTCM was unable to cover its bets and the crisis spread beyond emerging markets into the global financial system.

This time, Russia is facing a crisis because of its own military excursions and a drop in the price of oil. Russian stocks had been underperforming global stocks for several months and the crisis is simply a confirmation that the bears were right. When bad news is already priced into the stock market, as it was in Russia, there is little chance that an uncontrolled global crash will follow news of economic problems. Traders actually saw this one coming months ago.

Russian stocks might crash further, but there is no message for traders in the U.S. stock market from that news. U.S. stocks can continue setting new highs as long as the U.S. economy is growing.

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MichaelCarr
In 1998, Russia's financial woes triggered a stock market crash, and many investors are worried that we could see a repeat of that scenario. However, this time is different and Russia is unlikely to be the cause of a crash in 2015.
Russia, stock, crisis, 1998
270
2014-22-19
Friday, 19 Dec 2014 08:22 AM
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