Weak Ruble Strengthens Dollar as Russia Bear Market Accelerates
Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.
Russian politicians admit as much as $120 billion could flee Russia as the stock market and ruble decline amidst Russia’s push into Crimea and growing sanctions from the United States and the European Union.
Deputy Economy Minster Alexey Vedev said last week that $120 billion could flee the Russian economy after the Crimea invasion in early 2014 brought cross-border trade with the European Union to a grinding halt. At the same time, Russian stocks have fallen over 20% and the Russian currency, the ruble, has fallen nearly 17% against the U.S. dollar in 2014.
Russian politicians admit as much as $120 billion could flee Russia as the stock market and ruble decline amidst Russia’s push into Crimea and growing sanctions from the United States and the European Union.
Deputy Economy Minster Alexey Vedev said last week that $120 billion could flee the Russian economy after the Crimea invasion in early 2014 brought cross-border trade with the European Union to a grinding halt. At the same time, Russian stocks have fallen over 20% and the Russian currency, the ruble, has fallen nearly 17% against the U.S. dollar in 2014.
The ruble also hit a record low early this week.
Russia is finding its access to foreign capital increasingly constrained in debt and equity markets. Yields on ruble-denominated bonds have risen, with bonds due in 2023 reaching nearly 10% yields.
Falling Oil, Cheap Commodities
Russia’s economy is largely energy driven, with natural gas and oil exports dominating the nation’s GDP and exports. Brent crude contracts on oil have fallen to less than $94.50 per barrel, falling 20% from the peak reached in early February of 2013. The fall in oil closely matches the fall of Russian stocks on a shorter time frame.
More commodity traders are becoming bearish on oil, according to a recent report published by the Intercontinental Exchange, which showed a cut in long positions on oil, with short interest in the commodity rising over 4.7 times the decline of bullish oil bets. While some reports suggest OPEC is planning to limit supply, growing production of natural gas in the United States and declining demand in China have been bearish headwinds for oil.
Low natural gas prices have also hit Russian exports, causing Russian oil giant Gazprom to see its shares fall by over 10% in 2014.
Sanctions Offset Free Trade
In an attempt to attract capital, Russia opened local bond markets to foreigners in 2013 and has loosened restrictions on ruble exchange rates throughout 2014. Typically, open bond markets would raise demand for bonds that would depress yields, while less restrictive currency controls would bolster confidence in the ruble amongst foreign traders.
In reality, neither scenario has materialized as relations with Europe and the U.S. over the Crimea crisis have overshadowed any fundamental growth potential in the Russian market. The Russian economy is projected to show anemic growth in 2014, with the Russian government projected 0.5% GDP growth in 2014. Economic growth was flat in August and may begin to contract.
The Russian stock market has lost over 20% of its value since its peak, and some analysts expect Russia to fall further before finding a bottom as more the EU continues with broader sanctions against the eastern nation.
On Tuesday, pro-Russian rebels twice attacked Donetsk airport as tensions heighten between Kiev and the pro-Russian eastern frontier.
