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Russia: Financial markets under pressure amid crisis
Tue, Aug 26 2008, 10:25 GMT
by Lars Rasmussen
Russian financial markets have continued to underperform on the back of newsflow over the last 24 hours. The leading Russian equity index (RTS ) has fallen more than 3% this morning, as it heads for its lowest level in almost two years. Money market rates and bond yields have risen significantly over the last few days, and the otherwise stable currency (RUB) has also weakened somewhat against the dual currency basket (45% EUR and 55% USD). The negative sentiment has worsened over the last 24 hours in response to yesterday's newsflow, detailed below:
- • Russia's parliament, The Duma, passed a resolution yesterday to recognise the two breakaway regions of Georgia - South Ossetia and Abkhazia - as independent states. Some observers regard this move as a defacto Russian annexation of parts of Georgia. The G7 nations yesterday stated in a conference call that they are alarmed by this move.
- • President Medvedev warned ex-Soviet Republic of Moldova against repeating Georgia's "mistake" of trying to use force to seize back control of breakaway regions. This refers, among others, to the conflict over the breakaway region Transdniestria.
- • President Medvedev said that Russia is prepared to make a resolution regarding its relations with NATO, even if it means ceasing any cooperation.
- • Prime Minister Putin added that Russia gains no advantages from WTO membership and should freeze some commitments made during entry talks to the body. The Working Party on the accession of the Russian Federation began in the summer of 1993. Georgia has been a member since 2000 and Ukraine has been a member since May 16 2008. Every member state can veto new members, and this is probably what Putin's comments are about - i.e... he seems to be saying that Russia is not overly concerned about its WTO application being vetoed.
In summary, the Russian leaders sharpened their rhetoric against Georgia and Moldova yesterday, and Russia hinted that it is not greatly concerned about WTO membership and what NATO thinks about its actions. Russia's financial markets were punished as foreign investors continued to sell off Russian assets. Going forwards, we believe there are good reasons for investors to remain very cautious of Russian markets, which are likely to remain very volatile. The RTS has fallen more than 37% since its recent peak in mid-May, but there is no certainty that we have seen the bottom yet - much will depend on the Kremlin's rhetoric.
Published on Tue, Aug 26 2008, 10:30 GMT
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