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Putin Foe Navalny Appears in Court as Oil Sparks Stock Rout

April 17 (Bloomberg) -- Alexey Navalny, a leading opponent of President Vladimir Putin, appeared in court today in an embezzlement case that’s directing investors’ attention to the rule of law as the dropping value of oil undercuts stock prices.

The court in Kirov, 900 kilometers (560 miles) northeast of Moscow, postponed the hearing until April 24 today to give the defendants time to study the case. Navalny, 36, faces as much as 10 years in prison over charges that he defrauded a state timber company. He denies any wrongdoing and says the trial is payback for the biggest protests against Putin’s 13-year-rule in 2011.

“We all know that Putin is a thief and that’s why this case and many others are happening,” Navalny said outside the court. “We know very well we will triumph in the end.”

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 helps to oversee about $9 billion at Union Investment Privatfonds in Frankfurt.

‘Cause Celebre’

“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, who could mobilize ordinary citizens to start protests and street marches, and this is a risk the Kremlin is very cautious and fearful about.”

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.

Russia’s benchmark Micex Index entered a level some analysts call a correction on April 11 after dropping more than 10 percent from this year’s peak. The gauge fell 1.2 percent to 1,336.56 by 11:47 a.m. in Moscow, declining for a fifth day.

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. “The political situation with the Navalny trial isn’t helping” Russia’s investor perception.

Navalny’s Support

Navalny, who is being accused of defrauding the timber company Kirovles of 16 million rubles ($511,000) and also faces two other criminal cases, has 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 a poll published April 4 by the Levada Center. The survey was conducted March 22-25 among 1,601 people and has a margin of error of 3.4 percentage points.

Federal investigators twice overruled regional prosecutors who had dropped the case against him. The trial is a throwback to the Soviet era, according to Alexei Kudrin, who served as finance minister from 2007 to 2011 and left government after a dispute with then-President Dmitry Medvedev.

Soviet Throwback

“A guilty verdict will raise doubts about the market economy in Russia, including the right to conduct commercial transactions,” Kudrin said in comments posted late yesterday on his website. “This case takes us back in time, as if we were living not in 2013 but in the era of the Soviet planned economy.”

The Navalny trial follows the case against three members of all-female punk group Pussy Riot, who were convicted 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 be following the Navalny trial, his spokesman Dmitry Peskov told state television last week.

Former deputy prime minister Boris Nemtsov, an opposition leader who traveled to Kirov for the trial, said the authorities “are afraid” of Navalny and want him in jail.

Putin, 60, who pushed aside his protégé, Dmitry Medvedev, to reclaim the presidency last year, faces increasing domestic opposition to an extension of his rule.

According to a Levada poll published on April 11, 55 percent of Russians don’t want Putin to seek a new six-year mandate in 2018, while only 22 percent would support another term for him. The survey was also conducted March 22-25.

“Investors regard the Kremlin’s standoff with Navalny as a factor of destabilization,” Masha Lipman, an analyst at the Carnegie Moscow Center, said by phone. “There are indications that Putin’s legitimacy is eroding.”

To contact the reporters on this story: Jason Corcoran in Moscow at jcorcoran13@bloomberg.net; Henry Meyer in Moscow at hmeyer4@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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