The stock market hemorrhaged Thursday amid global investor angst, and insiders predicted that the sell-off would last for at least another week.
The RTS index sank 3.29 percent, and the MICEX index lost 4.2 percent, with three-day losses on both exchanges around 10 percent.
Analysts say the sell-offs closely parallel the worldwide emerging markets correction of last May and June, when the RTS lost about one-third of its value in a five-week period, and took about eight weeks to recover.
The main difference, however, is that this time the oil price is still doing well, with crude oil futures trading at around $62 in New York on Thursday. But it is doing nothing to cushion the damage.
Oil and gas blue chips took some of the hardest hits Thursday. Shares of Gazprom and LUKoil each shed almost 4 percent of their value, but Sberbank led the way down, falling by almost 7 percent after a 2 percent recovery on Wednesday.
During last May's correction, investors pulled roughly $15 billion out of emerging market funds, negating about three-quarters of the progress these funds made during the banner year of 2005, said Chris Weafer, chief strategist at Alfa Bank. Only about $10 billion have been placed back into these funds, showing that foreign investors had not completely regained confidence in markets like Russia, China and India.
And now they are faced with this.
"If you get that kind of scare, you end up in a debt spiral, where floor-selling pushes the market down, and that puts pressure on other investors to take their money out of these funds," Weafer said.
He added that the way out of the "spiral" would be for the state to dip into its reserves of capital, primarily the stabilization fund, which is made up of oil market windfalls from the last few years.
The initial reasons given for the downturn were trivial compared with the manic investor reaction. Rumors of a government clampdown on Chinese markets caused the Shanghai exchange to lose 9 percent Tuesday, the biggest drop there in the more than a decade. This triggered a correction on all developing markets, which are usually assessed as a group.
The crisis spread to the world's biggest economy when the United States saw a slump in orders for durable goods such as cars, and Alan Greenspan, the former chairman of the U.S. Federal Reserve, said that a recession was not likely this year but "possible," a benign comment that investors seemed to take very seriously.
But analysts agreed that the scare had no sensible economic causes, only "psychological" ones based on fears that emerging markets have been growing too long and too fast.
"No market goes up forever, and once a correction starts, it feeds on itself," said Kim Iskyan, chief economist at MDM Bank.
The MICEX had gained about 20 percent in the six months before this week's equity dump.
On Thursday, the Morgan Stanley's benchmark emerging markets index was down about 2 percent at midday in London, and the Shanghai exchange continued to stumble, losing 3 percent.
As U.S. exchanges saw some of the worst daily losses in five years this week, concerns surfaced over the health of the U.S. economy, which makes up for so much of the world's financial momentum that a recession would threaten to pull many global markets down with it.
"There have been questions about the U.S. economy for a long time ... and now investors are asking themselves if it is about to topple over," Iskyan said.
The only haven for investors could be the consumer goods sector, said Ovanes Oganisian, a Renaissance Capital analyst. He said growth would rely on consolidation among small and mid-sized firms, which is less susceptible to market volatility and commodities prices.
James Beadle, head of research at Pilgrim Asset Management, said he expected the sell-off to continue at least a week. But he saw some encouragement in the relative liquidity of the Russian market. "You can't sell a stock unless somebody buys it. That means there is still demand out there," he said.