The last time Russian stocks fell as much as they have this week was when President Vladimir Putin cracked down on protesters following his election in May 2012.
Putin’s incursion into Ukraine’s Crimea region, like the imprisonment of demonstrators following his return to the presidency two years ago, is sparking investor concern that Russia’s economic growth will falter as the U.S. and Europe threaten the country with sanctions. The Bloomberg Russia-US Equity Index of the most-traded Russian companies in the U.S. has fallen 6 percent this week, the most since the measure dropped 11 percent in the five days to May 18, 2012.
President Barack Obama said the U.S. and its allies will keep raising pressure on Russia to back down in Ukraine and held open the possibility of further sanctions if Putin’s government doesn’t respond. The dollar-denominated RTS Index has tumbled 20 percent this year, the worst-performing equity benchmark among 94 gauges tracked by Bloomberg. Obama spoke after Crimean lawmakers called yesterday for a March 16 referendum in a bid to return Ukraine’s Black Sea peninsula to Russia. JPMorgan Chase & Co. cut Russian stocks to underweight from overweight.
“Investors hate uncertainty, and there is a lot of uncertainty about Russia,” Bruce McCain, who helps oversee more than $20 billion as chief investment strategist at the private-banking unit of KeyCorp in Cleveland, said by phone yesterday. “Any time there’s a political turmoil, there’s an economic effect.”
The Micex Index (INDEXCF) gained 0.1 percent to 1,339.36, dropping 7.3 percent this week, also the most since May 2012.
Ukraine’s loss of Crimea would close access to some of the country’s Black Sea ports and rich farmland that stretches from Kerch on the Russia border to Yevpatoria on the peninsula’s west coast.
The Russian Duma will decide on the issue of Crimea after the referendum, said Leonid Slutskiy, the head of its committee on former Soviet countries. Putin discussed the developments with Russia’s Security Council, according to a statement on the Kremlin website, which didn’t give further details.
The U.S. banned visas for Ukrainian officials and others, including Russians, who it says are threatening Ukraine’s sovereignty. It also authorized financial sanctions, leaving the imposition of any restrictions until later.
Leaders of the 28-nation European Union bloc meeting in Brussels yesterday halted trade and visa negotiations with Russia and prepared sanctions against selected Russian officials amid disagreements about how fast to move.
“There were hopes for a softer negotiating stance,” Vladimir Tsuprov, the St. Petersburg-based chief investment officer of TKB BNP Paribas wrote in an e-mail. “It’ll be necessary to pay for this with sanctions, which will negatively affect the Russian economy. The market is discounting the negative fallout in advance.”
The Russia-US Index slumped in May 2012 as police detained hundreds of anti-government protesters following Putin’s return to the presidency. The activists were demonstrating in Moscow against alleged fraud in the parliamentary elections.
Overseas trading of Russian stocks is soaring as investors react to the twists and turns of the military standoff in Ukraine long after the Moscow bourse has closed for the day.
Events in Ukraine are “clearly a fundamental threat to our overweight rating,” Adrian Mowat, JPMorgan’s chief Asia and emerging-market strategist, wrote in a report dated yesterday.
The weaker ruble, higher inflation, and worsening consumer and business sentiment will cut domestic demand and investment, Mowat wrote.
Volumes in the Market Vectors Russia ETF (RSX:US), which tracks companies from Gazprom OAO (GAZP) to OAO Lukoil, surged to an all-time high of 26 million on March 3, more than six times the one-year average, as stocks plunged after President Putin got lawmakers’ approval to deploy troops in Ukraine’s Crimea region.
While U.S.-based ETFs investing in Russian equities lost 12 percent of their assets this year, the most outflows after Chile among 46 country-specific funds tracked by Bloomberg, these ETFs bought $54.8 million of the country’s stocks yesterday.
The Russian ETF has dropped 5.5 percent this week, while the Russia-US Index slumped 1 percent to 83.10 at 12:59 p.m. in New York today.
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