Ruble Tumbles Most in 14 Months With Crude After Brexit Vote

  • JPMorgan says Gazprom among companies most vulnerable to U.K.
  • Brexit risk is ‘muted,’ possible time to buy: Credit Suisse

The ruble weakened the most in 14 months as Britain’s vote to quit the European Union triggered a flight from riskier assets and pummeled the price of crude oil.

The currency of the world’s biggest energy exporter dropped as much as 5.5 percent, while bonds sank and stocks fell the most since January. Brent crude fell as much as 6.6 percent on Friday, weakening along with most commodities.

Russia joined a rout in developing-nation markets after Britain voted to end its more than four-decade membership of the European Union, stoking concern global growth may falter. Crude and natural-gas sales account for about 60 percent of Russia’s exports, and Friday’s slump crimped the ruble’s recovery from a record low at the start of the year.

“I think we’ve got further to go in terms of a sell-off,” Paul McNamara, who oversees $4.5 billion in emerging-market debt at GAM UK Ltd. in London, said by e-mail. “Financial stress means lower credit growth, means lower activity, oil drops, risk-seeking capital drops -- that all sends the ruble down.”

Gazprom Slides

Gazprom PJSC led declines on the benchmark Micex stock index, falling 2.1 percent to 141.25 rubles. Russia’s natural-gas monopoly is one of the companies most vulnerable to the so-called Brexit, JPMorgan Chase & Co. analysts wrote in an e-mailed note. With almost 70 percent of its revenue coming from European exports, the company is sensitive to “demand pressure,” they said.

Yields on five-year government debt rose 10 basis points to 8.86 percent. Russia’s credit risk climbed, with the five-year credit default swaps on Russian debt rising 16 basis points to 254. The currency pared declines to trade down 1.9 percent at 65.04 per dollar as of 6:40 p.m. in Moscow. After Friday’s rout, the ruble ended the week with a loss of 0.3 percent.

The situation is fragile, and one “black swan” event could trigger others, Finance Minister Anton Siluanov said in Moscow. At the same time, the Bank of Russia said it sees no direct risks and called the market reaction “predictable.” Policy makers are carefully monitoring the situation and have all the necessary instruments at their disposal, the press service said.

‘Muted’ Risks

Russia’s already-weak links to Britain have been further curbed since 2014 by U.S. and European restrictions over the country’s role in the Ukraine crisis. While British lenders’ claims on entities in South Africa amount to 178 percent of the country’s foreign-currency reserves, the equivalent exposure in Russia is just 3 percent, according to data compiled by analysts at UniCredit SpA.

"The risk from the Brexit for Russia is muted,” Alexey Pogorelov, an economist at Credit Suisse Group AG in London, said by phone. “Russia is isolated from the Brexit risk. Yes, there’s an initial shock, but many can use this as an opportunity to buy Russian assets."

While Russia “loses” from its exposure to the price of oil amid a weaker global economy, its vulnerability is counterbalanced by a signs the domestic economy is recovering and the potential easing of sanctions, Renaissance Capital economist Charles Robertson said in an e-mailed report today.

“In a negatively hit Emerging Europe, we see Russia faring relatively best,” Robertson wrote.

Not all stocks retreated on the Russian market on Friday. Preferred shares of Surgutneftegas OJSC climbed as much as 2.3 percent. The drop in the ruble boosts the local-currency value of the company’s $35 billion dollar cash pile, increasing the chances of a dividend payout for 2016, according to Alexander Nazarov, an analyst at Gazprombank.

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