The ruble weakened the most since the country intervened in Crimea and Russian stocks fell as the U.S. imposed new sanctions on companies to punish President Vladimir Putin for failing to end support for rebels in Ukraine.
The currency lost 2.3 percent to 35.1610 per dollar at 8:26 p.m. in Moscow, the most since March 3. The Micex Index slid 2.3 percent to 1,440.63, the lowest since May 30. OAO Rosneft posted the biggest retreat since May 2013 and its bonds fell the most on record after the oil producer appeared on a list released by the Obama administration, which acted in concert with the European Union yesterday to escalate sanctions. OAO Novatek, also on the list, had its steepest drop in four months.
The latest attempt by America and the EU to squeeze Russia by limiting access to financing will probably push the economy into a recession, according to Riedel Research Group Inc. in New York. Today’s drop wiped out 542 billion rubles ($16 billion) of the Micex’s market value and pared the rally to 16 percent from its low in March, when Putin annexed Crimea from Ukraine.
“People are scared because they don’t know the full impact sanctions will have on the businesses of Rosneft and Novatek,” Moscow-based Oleg Popov, who helps oversee $1 billion at Allianz Investments, the asset-management arm of Europe’s biggest insurer, said by phone. “Holding Rosneft and Novatek shares may become problematic for U.S. investors. People didn’t expect that sanctions would impact such giants of the Russian market.”
Russian companies face $3.93 billion of dollar-bond maturities by year-end, data compiled by Bloomberg show. The central bank said it has enough instruments to support individual financial institutions as well as broader financial stability, according to an e-mailed statement. The main consequences related to refinancing are for long-term loans and will have largely a delayed effect, it said.
The ruble extended the drop as Interfax said a Malaysian jet crashed in Ukraine. The passenger jet was bound for Kuala Lumpur from Amsterdam, it reported, citing an unidentified aviation official. Interfax said the jet was shot down.
Shares of Rosneft lost 4.3 percent and Novatek slid 5.5 percent. Government debt risk rose to the highest since May.
Credit-default swaps insuring against losses on Russia’s sovereign debt jumped 25 basis points to 208 basis points, according to data compiled by Bloomberg. A total of 9,726 contracts covering a record $9.8 billion were outstanding as of July 11, according to the Depository Trust & Clearing Corp. That’s up from about $5.5 billion at the start of 2014 and the sixth most among 1,000 companies and countries tracked by DTCC.
OAO Gazprombank, Russia’s third-largest lender, and eight state-owned defense firms also face the penalties. The sanctions will prevent the companies from accessing U.S. equity or debt markets for new financing with maturities longer than 90 days. They don’t otherwise prohibit U.S. companies or individuals from doing business with the Russian firms.
“The only real case for investing in Russia is when it gets dramatically oversold and clearly that’s not the case at the minute,” said John-Paul Smith, an emerging-market strategist at Deutsche Bank AG in London, who predicts the equity market will drop another 10 percent by year-end.
Ukraine said a Russian warplane shot down one of its fighter jets with a missile yesterday evening. The pilot was able to eject and survived, Ukrainian Defense Ministry spokesman Andriy Lysenko said today by phone from Kiev. Russia’s Defense Ministry declined to comment.
Ukraine’s benchmark Eurobonds slumped the most in a month, lifting the yield on the dollar note due in July 2017 by 60 basis points to 8.85 percent. The hryvnia was little changed.
The ruble slid the most against the dollar among 24 developing-country currencies tracked by Bloomberg, and weakened 2 percent versus the euro. The dollar-denominated RTS equity index dropped 3.8 percent in its sixth day of declines to 1,299.03, the most since March 3.
“A new negative trend may form on the stock market toward the 1,200 support level at RTS,” Alexander Losev, Moscow-based chief executive officer at Sputnik Group, said in an e-mail.
The government’s 2027 bonds slid the most since April 25, with the yield jumping 27 basis points to 9.04 percent. The rate on Rosneft’s dollar-denominated securities due in March 2022 soared 79 basis points to 6.115 percent, while that on Novatek’s similar-maturity debt jumped 61 basis points to 6.16 percent.
“The sanctions are particularly bad for the companies on the list as those are now shut out of the western financial system,” Ian Hague, who helps manage $1.1 billion including Russian stocks as the founding partner of New York-based Firebird Management, said in a phone interview yesterday.
At a news conference in Brasilia, Putin called the U.S. sanctions an “aggressive policy” and said they will only end up hurting American companies. The sanctions will lead U.S.- Russia relations to a dead end, he said.
The EU said it would halt lending for new public-sector projects in Russia by the European Investment Bank, the bloc’s in-house lender, and will use its influence to stop new lending by the European Bank for Reconstruction and Development.
Russia’s $2 trillion economy just skirted a recession with zero growth last quarter as capital markets seized up amid growing international tension.
The country has enough domestic resources to avoid a recession for now, said Ilya Kravets, the New York-based director of investment research at Daniloff Capital LLC. The world’s largest energy exporter has $474 billion of foreign-currency and gold reserves.
“I don’t see the Russian market declining anywhere near the lowest levels of this year just because of the U.S. sanctions,” Kravets said by phone yesterday. While the country avoided slipping into a recession in the second quarter, “the problem of stagnation is still there,” he said.