Ed Bentley

Russia's markets hit a trough last week, dragged down by worries about the sovereign debt of Europe's PIIGS.

The RTS lost 6.4 per cent on Thursday and Friday as concerns resurfaced about the ability of the governments of Portugal, Italy, Ireland, Greece and Spain to service their debt. The group of countries' financial predicament has rather cruelly led to their unflattering acronym.

"Russia has been a high beta play on the recovery in global markets so, although there is no direct feed-through ... the correction we saw in Russian markets last week was largely a result of the concerns from peripheral Europe," said Tom Mundy, equities strategist at Renaissance Capital.

Greece appears most at risk of sliding towards default, running a deficit of 12.7 per cent of GDP in 2009 - more than three times the permissible level in euro zone economies.
"[The threat] is very serious," said Peter Szopo, head of research at Alfa Bank. "It needs to be addressed with the aim of raising domestic savings and refinancing debt. But support from Brussels will be needed."

Oil prices also came under fire last week amid fears that the global economy isn't back on track. Crude prices dropped below $70 on Friday, before resurfacing to close at $71.1.
While Russian stocks sank, in particular in the energy sector, the worries over Southern Europe could see investors looking at other emerging markets.

"The investment case for a place like Russia with low debt levels and a relatively sound fiscal policy is strengthened [by the problems in Europe]," said Szopo.

Trading on the RTS's futures market for March reached a record high of 1.26 million contracts in a sign that investors are developing concerns about a second dip on Moscow's bourses.
"We're definitely seeing more hedging and that is a reflection of nervousness about the market. But overall the market is still very positive, so I wouldn't be surprised if this retreat we've seen over the last couple of days will create buying opportunities," said Mundy.

Meanwhile, Bloomberg is reporting that Barclays Capital has told analysts not to use the acronym PIIGS due to its derogatory nature.