Given the recent turbulence in global financial markets, Russia's stock slump has largely slipped under the radar. Yet Russian equities have suffered much steeper losses than their counterparts in the United States and Western Europe--Moscow's leading stock index lost more than half its value between May and mid-September, as compared to a 14 percent drop in the Dow Jones Industrial Average over the same period. Al Breach, a former managing director of equity research at UBS Moscow and a longtime analyst following Russian markets, says several factors are at play in Russia's decline. First, he points out that several other large emerging market economies--including China, Brazil, and India--have also suffered much steeper losses than developed market indices.

Beyond that, however, Breach says two other Russia-specific factors have added to Moscow's pain. First, he says Russia's military intervention in South Ossetia and Abkhazia has added to concerns about political unrest in Russia's sphere of influence and has shaken the country's economy. Taken in isolation, Breach estimates these concerns might have cost Russian stocks losses of 5 percent to 10 percent. Secondly, Breach says Russia struggles with an outdated capital market structure that continues to hinder development. He points to fears over corruption and transparency and concludes, "there's not much trust in the system."