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Russian stocks and bonds collapsed again on Monday, when the ruble plummeted, while investors took action to warn of a war threat in Ukraine.
Moscow’s Moex stock index dropped more than 5.5 percent, lost so far this year to about 15 percent, following a slight drop in their offices in Ukraine and the US and UK. Russia’s government debt has also plummeted, resulting in higher yields in six years, as the possibility of changing Western sanctions has led investors to lose Russian assets.
“All weekend issues are complex,” said Viktor Szabo, fund manager for the upcoming market fund at Aberdeen Standard Investments. “No one wants to be left with more responsibilities in Russia, so everything is on sale today.”
The ruble has lost more than 2 per cent against the dollar to reach the weakest level since November 2020. The figure prompted a major Russian bank to suspend its foreign exchange purchases in order to “reduce volatility in financial markets”. The ruble reduced its losses after announcing it would sell 1.7 percent lower, down more than 10 percent since October. Russia’s 10-year government debt yields rose to 9.75 percent, up 7.5 percent three months ago and the highest since early 2016.
The latest coup came as the UK ordered some of its ambassador’s staff to leave Ukraine, after the US ordered the staff of his ambassador to leave Kyiv for fear that Russia would engage in “major wars”. Nato he said its members are deploying troops to represent and “send other ships and warplanes” to allied countries in eastern Europe.
Russia’s assets have been severely strained for weeks after growing tensions on the eastern border of Ukraine, as Russia has mobilized nearly 100,000 troops while seeking security from the US and Nato. The risks of the crisis have plagued Western investors who have filled Russia’s economy last year, driven by high interest rates and careful financial management compared to many other emerging markets.
Russian bonds and currencies are now much cheaper, but investors are preparing for tougher Western sanctions – such as a ban on the sale of Russian bonds in the secondary market – could leave them stranded on ruble stocks, according to Szabo. The US and the EU are threatening strong curbs in response to any attacks, which could include the move by Russian banks to the global economic system and a ban on oil and gas exports that account for half of the Kremlin budget.
“It has some very good financial data that can be found in the coming markets,” he said. “But if things are going well like a pear it can be difficult to negotiate with customers if you are trapped on land.”
Russia’s debt exceeds 7 percent of JPMorgan index’s most closely followed market target, meaning that many investors are forced to keep bonds or put lower risk. This could leave many who would sell Russian bonds if the new sanctions led to their removal from the indices.
Additional reports of Henry Foy in Brussels.
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