Russian financial markets sustain fresh blow on rising Ukraine tensions

Russian shares and bonds took an extra hit on Monday, whereas the rouble additionally sank, as traders reacted to warnings of a rising menace of navy motion in opposition to Ukraine.

Moscow’s Moex inventory index was down greater than 7.5 per cent, taking its losses up to now this yr to greater than 16 per cent, following the partial withdrawals from their embassies in Ukraine by the US and UK. Russia’s authorities debt additionally slumped, pushing yields to their highest degree in six years, because the potential for swingeing Western sanctions prompted traders to dump Russian property.

“All of the weekend information is fairly dangerous,” stated Viktor Szabo, an rising markets fund supervisor at Aberdeen Customary Investments. “Nobody desires to be left holding lengthy positions in Russia, so every thing is promoting off at present.”

The rouble misplaced 1.5 per cent to commerce at 78.9 to the US greenback, down greater than 10 per cent since October and its weakest degree since November 2020. The yield on Russia’s 10-year native forex authorities debt climbed to 9.67 per cent, up from 7.5 per cent three months in the past and the best since early 2016.

The newest sell-off got here because the UK ordered a few of its embassy employees to depart Ukraine, after the US ordered members of the family of its embassy employees to depart Kyiv due to the chance that Russia would take “vital navy motion”. Nato has additionally stated its members are placing navy forces on standby and “sending extra ships and fighter jets” to allied nations in japanese Europe.

Russian property have come beneath growing strain throughout weeks of mounting stress on Ukraine’s japanese border, the place Russia has amassed some 100,000 troops whereas making sweeping safety calls for of the US and Nato. The rising menace of battle has jolted western traders who loaded up on Russian property final yr, drawn by the nation’s excessive rates of interest and conservative administration of its economic system in contrast with many different rising markets.

Russian bonds and its forex at the moment are extraordinarily low cost, however traders are making ready for the likelihood that tighter western sanctions — similar to a prohibition on buying and selling Russian bonds within the secondary market — might depart them caught holding rouble property, in keeping with Szabo. The US and EU have threatened stronger curbs in response to any assault, which might embody strikes to chop off Russian banks from the worldwide monetary system and restrictions on the oil and fuel exports that present half of the Kremlin’s price range income.

“It has by far the perfect financial coverage to be present in rising markets,” he stated. “But when issues go pear-shaped it could be a really tough dialog to have with purchasers in the event you’re trapped onshore.”

Russian debt includes greater than 7 per cent of a broadly adopted JPMorgan index of rising market native forex bonds, that means many huge traders are in impact pressured to carry the bonds or danger underperforming their benchmark. That would go away loads of potential pressured sellers of Russia bonds within the occasion that new sanctions resulted of their ejection from indices.

Further reporting by Henry Foy in Brussels.