People stand near a poster promoting an annual meeting of Russia's gas giant Gazprom in Moscow, June 27, 2014.
The ruble weakened the most since Russia intervened in Crimea and the country's stocks fell as the U.S. imposed new sanctions on companies to punish President Vladimir Putin for failing to end support for rebels in Ukraine.
Russia’s currency tumbled 1.6 percent to 34.9265 per dollar at 4:27 p.m. in Moscow, the most since March 3. The Micex Index (INDEXCF) slid 2.9 percent to 1,432.16. OAO Rosneft (ROSN) headed for the biggest retreat since May last year and its bonds fell the most on record after the oil producer appeared on a list released by the Obama administration, which acted in concert with the European Union yesterday to escalate sanctions. OAO Novatek, also on the list, had its steepest decline in four months.
The latest attempt by America and the EU to squeeze Russia by limiting access to financing will probably push the economy into a recession, said Riedel Research Group Inc. in New York. Today’s drop wiped out 633 billion rubles ($18 billion) of the Micex’s market value and pared the rally to 16 percent from its low in March, when Putin annexed Crimea from Ukraine.
“People are scared because they don’t know the full impact sanctions will have on the businesses of Rosneft and Novatek,” Moscow-based Oleg Popov, who helps oversee $1 billion at Allianz Investments, the asset-management arm of Europe’s biggest insurer, said by phone. “Holding Rosneft and Novatek shares may become problematic for U.S. investors. People didn’t expect that sanctions would impact such giants of the Russian market.”
Stiffer Penalties
Shares of Rosneft lost 4.5 percent and Novatek slid 8.8 percent. Government debt risk rose to the highest since May.
Credit-default swaps insuring against losses on Russia’s sovereign debt jumped 24 basis points to 207 basis points, according to data compiled by Bloomberg. A total of 9,726 contracts covering a record $9.8 billion were outstanding as of July 11, according to the Depository Trust & Clearing Corp. That’s up from about $5.5 billion at the start of 2014 and the sixth most among 1,000 companies and countries tracked by DTCC.
OAO Gazprombank, the country’s third-largest lender, and eight state-owned defense firms also face the penalties. The sanctions will prevent the targeted companies from accessing U.S. equity or debt markets for new financing with maturities longer than 90 days. They don’t otherwise prohibit U.S. companies or individuals from doing business with the Russian firms.
“The only real case for investing in Russia is when it gets dramatically oversold and clearly that’s not the case at the minute,” said John-Paul Smith, an emerging-market strategist at Deutsche Bank AG in London, who predicted the equity market will drop another 10 percent by year-end.
Plane Down
Ukraine said a Russian warplane shot down one of its fighter jets with a missile yesterday evening. The pilot was able to eject and survived, Ukrainian Defense Ministry spokesman Andriy Lysenko said today by phone from Kiev. Russia’s Defense Ministry declined to comment.
The ruble slid the most against the dollar among 24 developing-country currencies tracked by Bloomberg, and weakened 1.7 percent versus the euro. The dollar-denominated RTS equity index dropped 4.5 percent in its sixth day of declines to 1,289.51.
“A new negative trend may form on the stock market toward the 1,200 support level at RTS,” Alexander Losev, Moscow-based chief executive officer at Sputnik Group, said in e-mailed comments.
The government’s 2027 bonds headed for the biggest slide since April 25, with the yield jumping 33 basis points to 9.10 percent. The rate on Rosneft’s dollar-denominated securities due in March 2022 soared 88 basis points to 6.21 percent, while that on Novatek’s similar-maturity debt jumped 82 basis points to 6.37 percent.
‘Shut Out’
“The sanctions are particularly bad for the companies on the list as those are now shut out of the western financial system,” Ian Hague, who helps manage $1.1 billion including Russian stocks as the founding partner of New York-based Firebird Management, said in a phone interview yesterday.
At a news conference in Brasilia, Putin called the U.S. sanctions an “aggressive policy” and said they will only end up hurting American companies. The sanctions will lead U.S.- Russia relations to a dead end, he said.
The EU said it would halt lending for new public-sector projects in Russia by the European Investment Bank, the bloc’s in-house lender, and will use its influence to stop new lending by the European Bank for Reconstruction and Development.
Russia’s $2 trillion economy just skirted a recession with zero growth last quarter as capital markets seized up amid growing international tension.
‘Enough Resources’
The country has enough domestic resources to avoid a recession for now, said Ilya Kravets, the New York-based director of investment research at Daniloff Capital LLC. The world’s largest energy exporter has $474 billion of foreign-currency and gold reserves.
“I don’t see the Russian market declining anywhere near the lowest levels of this year just because of the U.S. sanctions,” Kravets said by phone yesterday. While the country avoided slipping into a recession in the second quarter, “the problem of stagnation is still there,” he said.
Russian shares slide on US sanctions
The Telegraph: 17. July 2014
Biggest fallers on the MICEX
Stock market in Russia and BP shares have been hit by a fresh round of US and European measures over Ukraine.
Russia’s stock market has been hit by the fresh round of US and European sanctions, with the country’s Micex index sliding sharply amid investor fears about the impact of the punitive measures.
The index fell as much as 3pc and was down 2.7pc in lunchtime trade in Moscow.
The US measures, unveiled yesterday, are seen as particularly damaging and focus on energy giants Rosneft and Novatek, as well as banks Gazprombank and VEB, by restricting their ability to raise money in American equity and debt markets.
The US has imposed the sanctions in response to the Russian intervention in the Ukraine crisis, with President Barack Obama saying he had acted because Russia had failed to de-escalate the situation. The European Bank for Reconstruction and Development has also stoped making new loans to Russia.
Shares in Roseneft - in which FTSE 100 oil major BP owns a near-20pc stake – dropped as much as 6.2pc. BP drifted 1pc lower in early trade in London amid nervousness about the impact of rising tension between Russia and the West.
“People are scared because they don’t know the full impact sanctions will have on the businesses of Rosneft and Novatek,” Moscow-based Allianz Investments fund manager Oleg Popov told Bloomberg.
In London, the FTSE 100 slid 25 points, or 0.4pc, to 6,758, with worries about China also weighing on market sentiment.
Huatong Road & Bridge Group, a building company, is at risk of becoming the first Chinese company to default on the principal and interest payments of a bond, raising fears about the country’s credit and construction markets.
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