Russian stock market closed - get ready for contagion

The Russian stock market has been closed for the last few days as stocks went into free fall. The fall is not just a liquidity crisis but a confidence crisis given the political changes especially with Russian foreign policy. An environment unfriendly to foreign investors, a more aggressive policy asserting their statism, and climate where property rights are questioned made the Russian stock market a place to pull capital during a credit crisis.

This free fall shows how even an oil rich country which should have no equity problems can see a major decline if there is a change in sentiment and investing environment. It also places a warning for all other emerging markets that capital flight can happen quickly. We have to be prepared for contagion to other countries which may have an unfriendly financial environment.