President Vladimir Putin’s meddling in Ukraine cost Russia dearly in financial markets. With the downing of Malaysian Airlines Flight 17, the toll is only getting worse.
The price to protect Russian bonds against default, already the highest among the four largest emerging markets, has surged since the July 17 tragedy in eastern Ukraine.
The Micex index resumed its decline, putting the losses since Putin began his push into Crimea in February at 4.2 percent through Monday and wiping out about $28 billion (R298bn) in market value, even as stock gauges from the US to India jumped to record highs.
Russia’s market slump is exacerbating a slowdown, the opposite effect of the wealth generation from stock rallies that are helping underpin growth across the globe.
Russian Deputy Economic Minister Andrey Klepach said this month that the $2 trillion economy had posted zero growth in the second quarter when compared with the first. That follows a 0.5 percent contraction in the period from January to March.
“The market is sending a signal that Russia should avoid becoming an outcast and avoid shutting itself out of global markets,” Aleksei Belkin, the chief investment officer at Kapital Asset Management in Moscow, said on Monday.
Putin “believes that what he is doing is justified and he is not facing a united opposition in Ukraine. But it’s getting costlier with every month.”
The Micex sank 6.1 percent in the three trading days through Monday, following a third round of US sanctions against Putin’s government and the downing of MH17. The Micex rose 1.8 percent by 3.03pm in Moscow yesterday.
Russia had cancelled its first rouble bond auction in three months, the finance ministry said yesterday, citing “unfavourable market conditions”. The yield on Russia’s rouble debt due in February 2027 fell 9 basis points to 9.14 percent.
Less than a week after approving new measures to punish Putin for failing to end support for Ukrainian separatists, the US is pushing EU governments for further penalties.
US Foreign Minister John Kerry said on Sunday that circumstantial evidence suggested Russia had provided the missile that rebels used to shoot down the plane.
UK Prime Minister David Cameron raised on Monday the prospect of a EU-wide block on defence exports to Russia, and targeted sanctions against the “cronies and oligarchs” around Putin unless Moscow dropped its support of the separatists.
Putin has defied international leaders, saying that nobody should “use this tragedy to achieve selfish political aims”. He blamed the crash on the Ukraine conflict and said Russia would “do everything it can” to seek a negotiated settlement of the crisis.
“The big difference between the recent deterioration in sentiment towards Russia and the pressure on other emerging market assets is that, in Russia, it is… driven by the actions of one man,” Nicholas Spiro at Spiro Sovereign Strategy said.
The cost of protecting Russian bonds against default for five years has risen about 23 basis points to 207 basis points this month, higher than Brazil, India and China. Russia’s credit rating was cut to BBB-, the lowest investment grade, in April by Standard & Poor’s.