Russian stocks saw their worst price slide in almost two years, falling 13 percent over the four sessions ending 19 January as fears grew that Russia will invade Ukraine and suffer economic consequences from a united western alliance.
The dollar-denominated RTS index plunged 7.3 percent to its lowest level since late 2020 and shares of state-run Sberbank sank 8.5 percent to a three-month low.
“We are seeing dislocations in the pricing of rock-solid fundamental stocks as certain western investors are exiting Russia at any price,” Luis Saenz, in charge of international distributions at Sinara Financial Corp., told the Financial Times.
Yields on ruble-denominated 10-year bonds jumped to their highest since 2016 as owners dumped them, causing Russia’s central bank to cancel its weekly bond auction.
A Russian dollar-denominated bond maturing in 2047 watched its yield move from 3.6 percent at the end of December to 4.8 percent last week.
If the West imposes financial sanctions, foreign bondholders would be unable to sell in secondary markets.
The ruble followed stock values down, dropping 0.9 percent against the dollar to 76.7, nearing its nine-month low.
Western nations have threatened Russia with being cut out of the international financial system and ending imports of its oil and gas if President Vladimir Putin sends Russia’s army into Ukraine… which we have detailed and continue to report in this week’s Trends Journal (See “BLINKEN MEETS WITH LAVROV: WAR HAWKS SCREAMING” and “POROSHENKO’S RETURN TO UKRAINE: FIRST CLASS FREAK SHOW” in this issue.)
TREND FORECAST: Petroleum exports account for about half of Russia’s annual budget, and Russia currently provides Europe with more than 40 percent of its natural gas supply.
Therefore, it is a lose, lose situation for the EU to keep putting sanctions on Russia, which will in turn shut off its gas flow to Europe. And it is a lose, lose situation for Russia to invade Ukraine and lose its biggest gas customers.
Therefore we maintain our forecast that absent a wild card or false flag event, there will be no Russian invasion of Ukraine, since they do not want their economy to further crash.
TRENDPOST: Russian financial markets also are being damaged by the trend among investors to flee weak and emerging economies as interest rates rise in western developed nations.