Russia's stock market lost over a tenth of its value on Friday, hitting its lowest levels since late 2004 as a further oil price fall cast fresh doubts over Russia's ability to avoid a recession and defend its currency.
The rouble slid a further 23 kopecks to 27.23 rouble per dollar, touching a two-year low, as the U.S. currency rallied on global markets prompting the central bank to sell another $1 billion to $2 billion to support the rouble.
"What we see is a huge liquidation. Liquidation of positions with big leverage, of those clients who used shares as collateral," said Timur Nasardinov from Troika Dialog.
"There is a global liquidation. But our Russian liquidity situation is much worse," he said.
Russia's benchmark RTS index fell more than 10 percent, while the more liquid MICEX bourse fell 14.2 percent before being suspended by the regulator until Tuesday.
Investors regularly complain about Russia's erratic trading hours and a drift in trading volumes to London, where most of Russia's more liquid shares are traded. The Russian index for London-listed shares fell 16.5 percent by 1040 GMT.
"It will most likely be a bad day in the U.S. today and on Monday in Asia. So the exchange will be shut on Monday," said Maxim Gulevich from UBS.
Nasardinov said the suspension will only cause further damage. "The situation with liquidity will be even worse: there will be sales abroad and no purchases here".
The state has pledged to start buying depressed stocks of state firms this or next week, although traders say state money may already have been used to buy shares.
On Thursday, Standard & Poor's lowered its outlook for Russia to negative, warning of the costs of bailing out troubled banks at a time when Russian spends billions of dollars per day to support the currency.
Gold and foreign exchange reserves fell by $15 billion last week to $515.7 billion. They were as high as $598 billion at the beginning of August but the central bank says it could spend more to prevent panic spreading to the streets.
MARGIN CALLS GROW
The cost of insuring Russia's sovereign debt against restructuring or default (CDS) hit record highs this week, with the debt now classified as distressed.
"It is clear what must happen to shares when Russian CDS are at 1,000 points. The roots of all this are in the credit market," said Nasardinov.
Russia's benchmark 30-year Eurobond speads to U.S. five year treasuries hit a record 1,025 bps.
Rating agencies see Russia's reserves as a key factor behind the country's investment-grade debt rating.
In individual company news, market participants noticed the number of margin calls warnings was growing.
Russian companies borrowed aggressively in recent years to fuel growth at home and abroad and used shares as collateral. As markets around the world tumble, bank lenders ask them to commit more assets or cash or redeem loans immediately.
On Thursday, Russian aluminium company RUSAL said it had managed to persuade billionaire Mikhail Prokhorov to allow it to defer a $700 million tranche for the purchase of his stake in mining giant Norilsk Nickel as RUSAL could not meet the Friday deadline.
The telecoms arm of Russia's Alfa Group said on Friday it had no plans to sell its stake in Russia's No.2 mobile phone firm Vimpelcom after a newspaper reported that Deutsche Bank could impose a margin call on a loan to Alfa Group.
"The snowball is growing. Until they close out all the owners who put up their shareholdings as collateral on loans, this is going to continue," said Eduard Lebedev, head of trading at Kapital brokerage.
On the currency front the central bank continued to fight against what it perceives as an attack on the rouble as it defends a 30.40 level versus the dollar/euro basket.
The regulator set a 15 billion rouble limit on currency swaps on Friday, down from 50 billion on Monday, in a bid to further deter speculators betting on the rouble devaluation.
"People are virtually cut off from shorting the rouble now. I think in the short term they (the central bank) have a good chance to stop the panic. They will defend 30.40 for a while," said a high-level executive from a Western bank.
