Dec. 31 (Bloomberg) -- A 72 percent drop in the RTS Index made Russia the worst index among the world’s 20 biggest equity markets this year and gave investors in the country their biggest losses since Russia defaulted on its debt 10 years ago.

OAO Gazprom dropped from being the world’s third-biggest company to 47th, and other stocks slumped amid falling oil prices, capital flight following the August war with Georgia and forced selling by investors and billionaires who faced margin calls from banks and brokers.

“The uninspiring performance of the Russian equity market was driven by the deteriorating global macroeconomic environment, but it was Russia-specific factors that drove the substantial underperformance,” UBS AG strategists including Dmitry Vinogradov wrote in a year-end report Dec. 23. “Russia has been hit by a triple whammy.”

Prime Minister Vladimir Putin, who vacated the presidency in May for Dmitry Medvedev, ordered an investigation of steel and coal producer OAO Mechel, which contributed to an 85 percent drop in its shares this year. The government also reopened an investigation into a flood at potash producer OAO Uralkali, helping that stock fall 71 percent in 2008.

Ruble Drops

Investment banks Renaissance Capital and UralSib Financial Corp. both predicted a year ago that the RTS would rise to 3,000 by today; instead the index tumbled to 631.89 at today’s close of trading, or little more than one-fifth of that level. Both banks later changed their recommendation, saying investors should buy bonds rather than only stocks in 2009.

The ruble fell 16 percent against the dollar this year, the currency’s worst annual performance since 1999, after the central bank began a series of small devaluations as the country’s foreign reserves, the world’s third-biggest, lost more than a quarter of their value, prompting Standard & Poor’s to downgrade Russia for the first time since 1999.

Trading was light today on the Micex Stock Exchange, Russia’s biggest by volume, with only 17.7 million shares of Gazprom changing hands in regular trading, compared with an average of 69 million over the last six months. The 30-stock Micex Index rose 0.3 percent to 619.53 in shortened trading today.

Trading was halted in the Micex more than 30 times this fall, helping send Russian trading volume to London, according to Micex’s Chief Executive Officer Alexei Rybnikov.

Gazprom passed General Electric Co. and China Mobile Ltd. in May to become the world’s third-biggest company by market value as its chairman at the time, Dmitry Medvedev, became Russia’s third president. Gazprom’s value has since fallen from about $360 billion to $86 billion. Deputy Chief Executive Officer Alexander Medvedev said in an interview last year that investors would value the company at $1 trillion as soon as 2014.

To contact the reporter on this story: William Mauldin in Moscow at wmauldin1@bloomberg.net

Last Updated: December 31, 2008 08:12 EST