Russia’s stock market gyrated on Tuesday as traders assessed Vladimir Putin’s decision to send troops into two separatist regions in Ukraine and weighed the impact of retaliatory western sanctions.
The Moex index ended the main session 1.6 per cent higher, having fallen more than 9 per cent earlier in the session. The whipsawing moves marked the most volatile two days of trading for Russian equities since Moscow seized control of Crimea in 2014.
On Monday, the Moex had fallen as much as 14 per cent — ultimately closing down by more than a tenth. Its initial declines on Tuesday came after Russia ordered forces into the rebel-held Donetsk and Luhansk regions at Ukraine’s Donbas border, sparking international condemnation.
Despite a recovery late in Tuesday’s session, Moscow’s main stock benchmark has still collapsed by more than a quarter since October, as investors responded to the escalating crisis and the growing chance of a Russian attack on Ukraine, which could trigger swingeing western sanctions in response.
Antony Blinken, US secretary of state, denounced Russia’s move as a “clear attack” on Ukraine’s sovereignty, while European Commission president Ursula von der Leyen said Russia’s advance — billed as a “peacekeeping” exercise by Putin — constituted a “blatant violation of international law”.
“Markets are waking up to the reality today that this is the biggest threat to European security since world war two,” said Tim Ash, an emerging markets strategist at BlueBay Asset Management. “I think a lot of foreign investors were still long on Russian assets, and it seemed like the locals overwhelmingly didn’t think an invasion was going to happen.”
The rouble fell to its lowest level since November 2020 before rebounding to trade about 1.9 per cent higher against the US dollar.
In a statement on Tuesday, the Bank of Russia said it was “monitoring the developments in the financial market and is ready to take all necessary measures to maintain financial stability”.
The escalation of tensions briefly sent oil prices soaring to a seven-year high, with Brent crude, the international benchmark, rising as much as 4.3 per cent to $99.50 a barrel before trimming its gains. Natural gas prices also rallied, buoyed further by the news that Germany has halted the approval of the Nord Stream 2 gas pipeline.
“If this kicked off in terms of a wider war, you’d expect to see natural gas prices in Europe being the greatest threat to the global economy,” said Charlie Robertson, chief economist at Renaissance Capital. “Oil could go up another $10 or $20, but natural gas, because of Europe’s dependence on it, could shoot up higher.”
Shares in state-owned energy group Gazprom, which has lost about a quarter of its value since the start of the year, rose 7.6 per cent, while shares in oil and gas group Tatneft advanced by about a tenth. Russian internet group VK also added about 10 per cent, recovering from a 17 per cent slide earlier in the day.
Other large Russian groups fared less well, however. Shares in Rosneft, another oil and gas major, fell more than 5 per cent. In a sign of investors’ growing concerns, turnover of stocks listed on the Moex index hit a record high of $7.7bn on Monday, data from Bloomberg showed. About $5bn had traded hands by the evening in Moscow, according to Moscow Exchange.
Foreign-listed shares in Russian companies have also come under strong selling pressure. An MSCI index tracking Russian stocks trading in London and New York has shed about a fifth of its value this year.
Putin’s recognition of the two Ukrainian regions prompted JPMorgan to downgrade Russia from overweight to neutral — meaning it no longer recommends taking an outsize position in the country relative to the benchmark — on expectations that the US and the EU will impose sanctions in response.
The US bank added that “further declines near-term” in the Russian stock market were likely.
However, for Robertson, Russian assets are “probably sold off enough now”. He noted that a dollar-denominated MSCI index tracking stocks traded on Moscow’s markets was down almost 40 per cent from its October 2021 peak. “We’ve only seen 45 per cent declines twice in the last 10 years.”
Investors continued to sell Russian debt, fearful of sanctions that could bar the trading of the country’s bonds in the secondary market — in effect making it unfeasible to hold them and potentially seeing them kicked out of widely followed indices.
The yield on Russia’s dollar bond maturing in 2030 climbed to 6.1 per cent, the highest since 2015 and up from about 2 per cent at the start of the year. Ukrainian bonds also fell sharply. The price of a dollar bond maturing in 2032 was down 7.5 cents to roughly 72 cents on the dollar, a level that indicates investors are concerned about the potential for a default.