Yesterday, Smart Commodities UK editor Garry White gave readers five reasons to invest in Russia, even as it is engaged in a war with Georgia.

However, the markets tell a different story. Two benchmark Russian share indexes – the RTS index and the MICEX index – hit their lowest levels in nearly two years yesterday.

John Stepek in Money Morning UK is bearish on Russia. He says the country is a basket case built mainly on petrodollars. This leaves it particularly vulnerable to a long-term correction in crude oil prices…

Some of the best returns you can get are in good old-fashioned hard cash. And when your best returns come from risk-free assets, suddenly things like political risk matter again.

That’s bad news for most emerging markets. And it’s a worry for the Brics too, all of which have seen their stock markets take a hit this year.

But it’s worse for China and Russia. Brazil and India have their problems, and plenty of them. India in particular has a fractious democracy, terrible infrastructure and chronic corruption. But at their core, they believe in democracy as a model for society, so the chances of dangerous social upheaval are comparatively low.

In China, the chances of a civil breakdown are higher. Economic problems tend to lead to unrest. The uprising in Tiananmen Square occurred at a time of high inflation, for example.

But Russia’s probably the most risky for investors. The country is a basket-case in many ways. It has appalling social problems including high levels of alcoholism, HIV infection and suicide. And while surveys suggest that the Chinese population seems largely comfortable with the idea of capitalism, ordinary Russians seem to pine for the good old days.

Above all, Russia’s recovery from bankruptcy in the 1990s has been built on the soaring oil price. China makes things for US consumers; Brazil has a broad range of commodities for sale; and India has a bright, cheap white-collar workforce. All of those are under threat from the global slowdown, but none quite as much as the price of oil.

All those petro-roubles pouring into the coffers have given Russia back its swagger. But as the deflating credit bubble leads to global economic downturn, the oil price is already falling. That’s why if Russia wants to press home its advantage, it needs to do it now.

Hence the stepping up in state rhetoric and confiscation of assets, and its action in Georgia. What’s the US going to do after all? America doesn’t have any money – and all the funds it could borrow are being spent in Iraq. Who’s going to risk distracting the army’s attention from that over a minor satellite state?

As for investors – well, Russia’s got what it needed from them. It doesn’t have to indulge them anymore. And that means that investors can no longer ignore political risk in the country. If I was you, I’d take any Russian profits you’ve made off the table. The time will come to get back in, but it’s not now.

PS: There is more on China and the troubles it faces in the current issue of MoneyWeek. If you’re not already a subscriber, you can get your first three issues free by clicking here.