Russian markets remain fragile

Large demonstrations in Moscow yesterday.
Fragile truce in eastern Ukraine and risk of new sanctions weighing on Russian assets.
We remain bearish on the outlook for the rouble.

Assessment and outlook

At the weekend we saw large demonstrations in Moscow. The demonstrations were against what is seen by protestors as Russian military involvement in the Ukrainian conflict. It is unclear how many participated but they are likely to be the biggest antiwar/anti-government demonstrations in Russia since February 2012. Overall, the demonstrations were calm even though there were reports of minor scuffles between antigovernment demonstrators and pro-Kremlin counter-demonstrators.

In an interview published on Sunday by the French newspaper Le Monde, former oligarch Mikhail Khodorkovsky stated that he would be interested in becoming Russia’s president. Khodorkovsky’s comments are somewhat surprising given he was released from prison almost a year ago due to the amnesty. At that time, Khordorkovsky said he would not return to politics.

Also over the weekend, the Ukrainian government voiced some concerns about the ceasefire in eastern Ukraine. Ukrainian government military spokesman Andriy Lysenko said that at least two Ukrainian soldiers had been killed in fighting over the weekend. Ukrainian president Petro Poroshenko also voiced concerns over continued fighting in eastern Ukrainian in a televised Q&A session with journalists. Worries over the state of the ceasefire were increased on the back of comments from NATO’s Supreme Allied Commander Europe US Air Force General Philip Breedlove. Breedlove said that the ceasefire was one ‘in name only’.

While we do not think that the demonstrations are likely to have any major market impact, it would be very worrying if the ceasefire in eastern Ukraine breaks down completely, which would be certain to have negative ramifications for the Russian markets and for the broader central and eastern European markets. The risk of new sanctions against Russia remains high as last week the US senate foreign relations committee unanimously passed the Ukraine freedom support act, requiring the president to apply new sanctions against Russian defence firms and Gazprom ‘if the President determines that Gazprom is withholding significant natural gas supplies from member countries of NATO or further withholds such supplies from countries such as Ukraine, Georgia, or Moldova’.

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