Russian markets tanking
In our last post, we talked about the war of sanctions
between Russia and the West which Russia was clearly loosing, thanks, in
particular, to its own retaliatory sanctions. The flow of news from the
frontlines of this war is not abating, so we decided to provide you with an
update. On the background of the country’s grim economic prospects, the Russian
ruble is now back above 36 rubles for one US dollar (as compared to 33 a year ago), the historic high level which was tested previously
only once – during the onset of the Crimea invasion in early March 2014. According
to the Russian newspaper Vedomosti,
on the back of weaker oil prices and lack of foreign financing, as a result of
sanctions, the US dollar may cost as much as 37.5 Russian rubles by the end of
the year.
The yield for short-term Russian domestic sovereign
bonds, so called OFZs, has grown from 6.8% in late May 2014 to almost 10%
currently, while, according to Bloomberg, the Russian government has recently canceled
its fifth domestic bond auction in a row. This year, 13 debt auctions have
already been cancelled due to a general selloff in Russian-based assets. Bloomberg
reports that the cost to insure Russian sovereign foreign debt against
non-payment for five years was at 278 basis points in early August, or 123
basis points higher than an index of the other so-called BRIC nations - Brazil,
China and India, the most since September 2009. After the talks started among
the Ukrainian, German, French and Russian foreign ministers in Berlin this
week, this gap narrowed to 104 basis points.
Russian stocks are among world biggest laggards this
year. Year-to-date, the Russian MICEX index of stocks is down 2%, while the RTS
index is down 10%. For comparison, over the same period, the MSCI Emerging Markets Index has grown
by more than 8%, the American S&P 500 index has been up by 7% and the Canadian
S&P/TSX Composite Index has grown
almost 14%.
By: Ukrainian Credit Union Limited
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