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Putin Critic Navalny’s Trial Starts as Oil Drop Fuels Stock Rout

April 16, 2013

Alexey Navalny, a leader of the opposition to Russian President Vladimir Putin, goes on trial today for embezzlement, focusing investors’ attention on the rule of law as the dropping value of oil undercuts stock prices.

Navalny, 36, is being tried in Kirov, 900 kilometers (560 miles) northeast of Moscow and faces as much as 10 years in prison over charges that he defrauded state timber company Kirovles of 16 million rubles ($511,000). He denies any wrongdoing and says the case is payback for helping lead the biggest protests against Putin’s rule in 2011.

The treatment of Navalny, a lawyer who’s campaigned to expose fraud and waste at state companies and corruption by officials, is reminiscent of the jailing of Yukos Oil Co. owner Mikhail Khodorkovsky, who funded opposition parties, according to Sergey Dergachev, a fund manager who oversees about $9 billion at Union Investment Privatfonds in Frankfurt.

“Navalny is the next Khodorkovsky insofar as he has some popular cause celebre appeal abroad and at home,” Dergachev said by e-mail. “He’s seen as someone who is a threat to the regime, who could destabilize it, and this is a risk the Kremlin wants to avoid.”

Investors’ unease is growing about Russian assets as the price of crude oil, the country’s main export earner, tumbles. Brent crude dropped below $100 a barrel for the first time since July yesterday.

Stocks Drop

Russia’s benchmark Micex Index (INDEXCF) entered a level some analysts call a correction on April 11 after dropping more than 10 percent from this year’s peak. Russian fund outflows in the week ended April 10 were $393 million, the most since September 2011, according to an e-mailed note from UralSib Capital dated April 12, citing EPFR Global data.

“I’ve sold massive holdings in Russian stocks in January and was right,” Dmitry Mikhailov, who manages $130 million in assets at Renaissance Capital in Moscow, said by phone on April 12. “The political situation with the Navalny trial isn’t helping” Russia’s investor perception.

Navalny, who faces three criminal cases, pledged to compete for the presidency and threatened to “do everything” to imprison Putin and his billionaire allies if he seizes power.

Among respondents familiar with Navalny, 14 percent would “definitely” or “probably” support his presidential run, according to an April 4 report by the polling company Levada Center. The survey was conducted March 22-25 among 1,601 people and has a margin of error of 3.4 percentage points.

Won’t Follow

Aside from the embezzlement charges, two other criminal cases have been opened against Navalny. Federal investigators twice overruled regional prosecutors who had dropped the case against him.

His trial follows the case against three members of all- female punk group Pussy Riot, who were jailed last August for a protest targeting Putin inside Moscow’s Christ the Savior cathedral. One was later freed on appeal.

Putin won’t be pushed by a “wave in the West” and won’t follow the Navalny trial, his spokesman Dmitry Peskov told state television last week.

“The political risks aren’t going anywhere,” Ilya Mozgovoy, who helps oversee about $1 billion in assets as the head of asset management at Allianz Investments in Moscow, said by phone on April 15. “Everyone understands the scenario of Navalny’s trial. In the context of Khodorkovsky’s trial, investors are prepared for the verdict. It won’t be a surprise.”

To contact the reporters on this story: Jason Corcoran in Moscow at; Henry Meyer in Moscow at

To contact the editor responsible for this story: Balazs Penz at

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