Market Reaction to Moscow Airport Bombing Muted

The suicide bomber who killed 35 people and injured about 150 more in an attack on Russia’s busiest airport on Monday may have, among other reasons, intended to discourage Russia’s efforts to attract foreign investment, but markets themselves had a short-term, low-key reaction to the attack.

While Russian markets and the ruble took a tumble in the immediate aftermath of the bombing, broader reaction was less marked. U.S. Treasuries did rise in the wake of the Domodedovo airport attack, but there was greater market reaction to a stunning drop in GDP in Britain on Tuesday. According to a Reuters report, by Tuesday the ruble recovered and was expected to continue to rise.

Analysts said that Russian investors are hardened to such occurrences, and cited previous instances in which the markets rebounded quickly. Tim Steinle, co-manager of the Eastern European Fund (EUROX) at U.S. Global Investors, said in an interview with AdvisorOne that, tragic as circumstances were, the bombing was unlikely to deter investment in Russia.

He pointed out that plans underway for the Troika Dialog-organized investment conference, Russia Forum 2011, set for Feb. 2-4 in Moscow, have not been canceled, nor has President Medvedev canceled plans to attend Davos, at which he was scheduled to present the opening statement. “He might tilt [the subject] more toward global terrorism,” he said, “but he is still planning on going.”

Steinle added that the subway bombing in 2010, which also took many lives, “didn’t seem to affect investor sentiment in a negative way.” He also called attention to Pepsi’s entry into Russia—“a strong endorsement for a Russian-domiciled company”—and BP, which “most recently did a deal share swap; they replaced reserves that they sold last year at less than half the cost in Russia”—as examples of the market’s appetite for new territory despite potential unrest.

The attractiveness of the assets, he added, “makes the investing case. It seems as if Russian investment is more a function of attractiveness of the investments than the speeches the politicians make,” he concluded.

While the average European or American may not be quite as sanguine about such events as Russians, there is little indication of hesitation on the part of investors. Also, expectations of tighter money policy on the part of Russia’s central bank, as well as strong December industrial output numbers, go a long way to reassure.