Ruble Slides as Russian Stocks Tumble Most Worldwide on Ukraine
Moscow-Russia (Jan 26) The ruble slid the most in emerging markets and Russian stocks ended a three-day rally as bloodshed in Ukraine raised the likelihood for tougher sanctions that would compound the nation’s economic slump.
Worsening violence in Ukraine, where the death toll climbed to more than 5,000, is returning to the radar of investors whose focus had for months switched to slumping oil, higher interest rates and risks to Russia’s investment-grade rating. The U.S. and European Union warned that Russia, which they accuse of aiding rebels in eastern Ukraine, may face further repercussions after a rocket attack on the port city of Mariupol on Saturday.
“Geopolitics are expected to return to the picture on the escalation in eastern Ukraine and talks in the west about new sanctions against Russia,” Vladimir Miklashevsky, an analyst at Danske Bank A/S in Helsinki, said by e-mail. “Falling oil and a possible fear premium will weigh on the ruble this week.”
The currency weakened 2.1 percent against the dollar by 2:45 p.m. in Moscow, its biggest decline in almost two weeks, amid speculation OAO Rosneft will swap the 400 billion rubles ($6.1 billion) it raises from a bond sale into dollars. The 5 percent drop in the dollar-denominated RTS Index was the largest among more than 90 benchmark equity gauges tracked by Bloomberg.
The escalation in Ukraine comes as Standard & Poor’s assesses whether to keep Russia at its lowest investment-grade rating. S&P said last month there was at least a 50 percent chance that Russia would be cut to junk by the end of January.
Red Light
“What we see in Ukraine now is a full-blown war, which is a red light for investors into Russian assets,” Andrey Vashevnik, who manages $25 million as the chief investment officer at R&B Investment Fund Ltd. in Moscow, said by phone. “There’s a strong change of an S&P downgrade to junk and that would be really painful for Russia in the long run.”
The cost of insuring Russian debt against default for five years increased for the first time in three days, climbing 19 basis points to 575, the fifth-highest globally. Government bonds fell, sending the yield on five-year notes up 43 basis points to 15.13 percent.
The rate on the securities has almost doubled since President Vladimir Putin’s incursion into Crimea started last March, leading to the annexation of the Black Sea peninsula. The standoff that ensued with the U.S. and EU left Russian companies shut off from international debt markets, prompting a dollar shortage at home that was among the reasons behind the ruble’s 46 percent plunge last year.
Rosneft Bonds
Rosneft will place local-currency bonds today at 11.9 percent. Russia’s largest oil producer has $19.5 billion of debt due this year, according to an Oct. 29 presentation. Its shares fell 3 percent in Moscow today, while the company’s Eurobonds maturing in March 2022 fell the most since Jan. 5, pushing the yield up 40 basis points to 9.69 percent. Sale proceeds aren’t intended for buying foreign currencies, Rosneft said on its website.
“Rosneft’s plan to raise bonds spurs investor concerns regarding additional pressure on the ruble,” Vitaly Isakov, a money manager at Otkritie Asset Management in Moscow, said by e-mail.
The ruble weakened to 65.5970, the lowest on a closing basis since the central bank hoisted interest rates by 650 basis points to 17 percent on Dec. 16 in Moscow, prioritizing the ruble’s stability over shoring up the economy, which analysts expect will contract 3.5 percent this year. The central bank will keep the rate at 17 percent at its Jan. 30 meeting, according to all but one of 18 economists in a Bloomberg survey.
Brent crude, which dropped 1.6 percent to $48.02 a barrel today, exacerbated today’s slide in Russian assets as the U.S. and its allies put pressure on Russia to use its influence on Ukraine rebels. Oil and natural gas account for about 50 percent of Russia’s government revenue.
“Renewed concern over a new round of sanctions is clearly negative for the Russian market,” Vladimir Osakovskiy, the chief economist in Moscow for Bank of America Corp., said by e-mail.
Source: Bloomberg
