Russian Markets Drop as Putin Orders Military Tests Near Ukraine

The ruble sank to a record low and Russian equities extended declines after the Interfax news service reported President Vladimir Putin ordered military exercises amid deepening tensions in Ukraine.

The ruble slid 0.8 percent to 42.0406 against Bank Rossii’s target basket of dollars and euros, the weakest level on a closing basis, by 6 p.m. in Moscow when the central bank stops its market operations. The Micex stock index fell 0.6 percent to 1,470.53 after a 0.9 percent drop earlier. The yield on government bonds due February 2027 rose eight basis points, or 0.08 percentage point, to 8.43 percent.

“The Russian market is jittery due to the ongoing uncertainty surrounding the political situation in Ukraine,” John Heisel, the Moscow-based vice president of sales and trading at Renaissance Capital Holdings Ltd., said by e-mail. “Ruble weakness combined with this afternoon’s headlines on military preparedness combined to send the market lower.”

Putin issued orders to conduct an immediate check of the combat-readiness of central and western military districts as well as a test of air defense, airborne troops and aviation, Interfax reported, citing Russian Defense Minister Sergei Shoigu. The news service later cited Shoigu as saying the tests aren’t linked to the situation Ukraine. Tensions flared in the southern Ukrainian region of Crimea as demonstrators pushing for a referendum on joining Russia clashed with members of the Tatar ethnic minority.

The ruble drop is “all to do with Ukraine,” Denis Korshilov, head of fixed income, currencies and commodities at ZAO Citibank in Moscow, said by e-mail today. “The situation there is worsening rapidly and tensions are increasing in the Crimea.”

Bond Auctions

Ukraine’s interim government is seeking to secure as much as $35 billion in financial aid to fend off a possible default after the ouster of Viktor Yanukovych from the presidency last week. More than 80 protesters and police officers have died in the riots.

The ruble depreciated 0.9 percent to 36.0115 per dollar and slid 0.7 to 49.4070 against the euro. The currency has weakened 8.8 percent against the greenback this year, the second-worst performance among 24 emerging-markets currencies tracked by Bloomberg as Federal Reserve stimulus cuts curbed investor appetite for emerging-market currencies.

Russia’s equities have the cheapest valuations among 21 developing countries monitored by Bloomberg, with shares on the Micex trading at 5.3 times projected 12-month earnings, compared with a multiple of 10.2 for the MSCI Emerging Markets Index.

The Finance Ministry sold 5.12 billion rubles ($142 million) of bonds due January 2028 and 1.02 billion rubles of May 2020 notes after offering 10 billion rubles of each maturity at auctions today, the ministry said on its website.

“The key point of concern here is clearly a potential negative impact on sentiment from what some investors may interpret as Russia preparing for a potential military conflict in the area,” Slava Smolyaninov, chief strategist at UralSib Capital LLC in Moscow, said by e-mail.

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