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CIS: Russia − Georgia conflict escalates
Mon, Aug 11 2008, 12:24 GMT
by Lars Christensen, Lars Rasmussen
Russian forces gained control of South Ossetia's regional capital, Tskhinvali, during the weekend after driving out Georgian troops. Furthermore, Russia has today issued an ultimatum to Georgian forces near the second breakaway region of Abkhazia to disarm or face attack - Russia has boosted paratroop numbers to more than 9,000 and now has 350 pieces of armour in the region. Georgia quickly rejected the Russian demand, however, and the conflict thus seems to be escalating further as fears increase that fighting could spread to this region too.
Russia's financial markets remain under pressure today following the news. Performance has been negative in FX, fixed income and equity markets, and among derivatives. The Russian rouble (RUB) at one point weakened more than 1.3% against its dual currency basket (45% EUR and 55% USD) to trade around 30.10. The Russian central bank (CBR) has since stepped in to support the currency. The RUB basket currently ranges between 29.70-29.90 - a few percentage points weaker than last week.
Meanwhile, Russian share indexes have hit their lowest levels for almost two years. Russia's benchmark RTS stock index fell more than 4% this morning - to its lowest level since November 2006 - although it has rebounded somewhat in the last couple of hours. Overall, Russian equities are down more than 30% from their peak in mid-May (see additional comments here: Flash Comment - Russia: Markets under pressure amid geopolitical tensions, August 8, 2008).
Going forward, the Russian markets will remain under pressure for as long as there is no move towards a resolution of the conflict. In addition, further falls in oil prices could add to the downward pressure on Russian assets. Caution is thus clearly warranted in the Russian financial markets.
Published on Mon, Aug 11 2008, 12:28 GMT
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