Ukraine Crisis: Russian Stocks Plummet 50 Per Cent In One Day, Currency Crashes
As EU commissioner Ursula von de Leyan announced severe financial sanctions against Russia as it starts its invasion of Ukraine, the combined weight of sanctions from the West is having a profound effect upon markets – none more so than in Russia.
Capital flight in the digital age is instant – and it shows.
The consequence is the start of an ongoing collapse of the Russian economy.
STOCKS: Russian equities fell the most on record today, erasing more than $150 billion in value in a matter of hours after President Vladimir Putin ordered an operation to “demilitarize” Ukraine and targets were attacked across the country.
The benchmark MOEX Russia Index is down about 50% from its October record high and along with the dollar-denominated RTS is the worst-performing stock market globally this year.
The news of the invasion fueled a hunt for safe-havens, with investors fleeing equities around the world.
CURRENCY: The Russian rouble tumbled to a record low today, the euro sank to a multi-year low to the Swiss franc, and the yen jumped after Russian forces attacked Ukraine, firing missiles at several cities and landing troops on its south coast. Against the Euro the rouble plummeted to an all-time low as EU commissioner announces severe financial sanctions.
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GOLD: As Russia invaded Ukraine, gold prices skyrocketed to their highest level in more than a year at $1950 per ounce. Bullion has witnessed a spike amid the increasing standoff between Russia and the West. Gold is now seen as a hedge against major economic and geopolitical ructions.
OLIGARCHS: Russia’s billionaires have lost a combined $32 billion since the start of the year, according to calculations by Bloomberg.
Their fortunes — held largely through ownership stakes in Russia’s giant commodities firms — have crashed amid unprecedented market volatility as the Ukraine crisis continues to escalate.
“We expect further declines near-term in the Russian stock market,” analysts at JPMorgan Chase wrote in a note to clients on Tuesday. The Wall Street bank downgraded Russian equities to “neutral” from “overweight.”
MOSCOW TIMES: The headline tells you all you need to know. “Russia’s Economy on the Brink of Crisis After Ukraine Attack”
“Despite Moscow’s talk about a sanctions-proof economy, Putin’s military action will likely have steep costs. Russia’s economy faces being plunged into a fresh economic crisis following Moscow’s move to start military action in Ukraine.”
However, the paper goes on to say:
“The Russian government says it has built up significant government reserves — more than $630 billion — which it believes will protect the economy from the worst of any economic crisis.
The government runs an annual surplus — meaning it does not need to borrow cash on either the domestic or international markets — and government debt is below 20% of the country’s GDP.
Russia has also boasted about the success of its import substitution drive since it annexed Crimea in 2014, pointing mainly to the development of its agricultural industry thanks to a ban on food imports from the EU.
State-owned Sberbank, by far the country’s largest and most important financial institution, issued a bullish statement on Thursday morning, claiming it was “ready for any development of the situation” and had “worked through scenarios to guarantee the protection of our resources, assets and customer interests.”