Russian President Vladimir Putin’s meddling in Ukraine is starting to cost Russia dearly in financial markets.Observations from around the globe.1) The price to protect Russian bonds against default, already the highest among the world’s four largest emerging markets, has surged since the July 17 incident in which a Malaysia Air Airliner was shot down by what most experts believe to be a missile supplied to the Ukrainian separatists by Russia. The Micex Index resumed its decline wiping out about $28bn in market value since the Crimean invasion.2) The cost of protecting Russian bonds against default for five years rose about 23 basis points to 207 basis points this month, the highest among the world’s largest emerging markets including Brazil, India and China.

3) Russia has had its credit rating cut to BBB- by Standard and Poor’s, the third reduction since the Crimean invasion. BBB- is the lowest investment grade ranking available to economies the size of Rusia’s. Global investors withdrew $348m from Russian bond and stock funds since the end of February.

4) Russian corporate debt sales overseas are down 67% this year just as cheap global borrowing costs spur record issuance worldwide.

5) Russia’s foreign reserves have slid by 17 percent in the last six months.

6) Russia’s market slump is exacerbating an overall economic slowdown. Russian Deputy Economy Minister Andrey Klepach said this month the $2-trillion economy posted zero growth in the second quarter when compared with the first. That follows a 0.5% contraction in the January-to-March period.

7) The 19 richest Russians lost $17.4bn since the start of the year. By comparison, the richest 64 Americans have seen their wealth go up $55bn.

8) “The market is sending a signal that Russia should avoid becoming an outcast and avoid shutting itself out of global markets,” said Kapital Asset Management’s chief investment officer in Moscow,

9) Russia cancelled its first rouble bond auction in three months, citing “unfavourable market conditions”, its finance ministry said last Tuesday.

10) British Prime Minister David Cameron on Monday raised the prospect of a EU-wide block on defence exports to Russia, as well as targeted sanctions against the “cronies and oligarchs” around Mr Putin unless the country drops its support of the separatists

11) Spiro Sovereign Strategy’s Nicholas Spiro in London reacting to Cameron’s announcement noted that, “The big difference between the recent deterioration in sentiment towards Russia and the pressure on other emerging market assets is that in the case of Russia it is almost entirely driven by the actions of one man. While there’s no question that Russia’s economy is in a dire state right now for a variety of reasons, sentiment towards Russian assets is still strongly, and negatively,  influenced by perceptions of what Mr Putin will do.”

BUT…..

12) A number of analysts believe that Russia will periods of short-term market volatility because of its strong foreign-reserve and fiscal accounts.  “I don’t see any material reason to be overly concerned about the value of Russian assets for long-term investors,” head of research at Ashmore Group, Jan Dehn, has observed. “Ultimately investors tend to focus quite closely on the underlying resilience that’s embedded in the Russian economy by virtue of its very high foreign-exchange reserves and very low levels of debt,” he said.

Here is one of the strongest indicators of that resiiene: Russia’s debt equalled just 13% of gross domestic product last year, compared with the global average of 79%, while its foreign reserves were the fifth-largest in the world.

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Misterbadexample
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The financial analysis you provide is spot on, but I think there’s more to this discussion than what Putin is up to. My understanding is that the dissolution of the USSR and the independence of its satellite countries was negotiated under some understandings that have since been violated. Specifically, the then-Soviet leadership was assured that NATO would not expand eastward. In fact, the opposite has happened.
http://www.spiegel.de/international/world/nato-s-eastward-expansion-did-the-west-break-its-promise-to-moscow-a-663315.html

And Ukraine membership in NATO is the Rubicon. As a NATO member, Ukraine could be used to base military forces on a vulnerable point on Russia’s eastern border. The West has engaged in a no-holds-barred attempt to lure Ukraine into the EU fold. And the World Bank’s $10 B in ‘aid’ to Ukraine would be a loan that would require the kinds of austerity measures that have lead to riots in Greece and Spain.

The financial world is extremely fragile at the moment, what with the possibility of war and oil embargo in the Arab world and the ongoing meltdown of Japan’s financial position post-Fukushima. Putin cannot be the leader of Russia who lets go of Ukraine.

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AdLib
Admin

Murph, what has to be kept in mind as the most powerful offensive force against Putin is the Russia public. He has been riding high in the polls because of the propaganda campaign he has been waging, making Russians believe that Russia is now on the path to return to imperial greatness.

But if the Russian economy continues to tank and the Russian peoples’ dream of world power evaporates into massive unemployment and deprivation, the anger and pushback against Putin and his regime will be overwhelming.

This has to be long game thinking and there will be losses especially for neighboring countries of Russia’s as time goes by but it would be insane and far more devastating to pursue any direct military or surrogate military approach.

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EXFANOFARIANA
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EXFANOFARIANA

So MTS, it means that he has already won?Scary shit …….”Those who do not learn from the past…”Great post!

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monicaangela
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I believe the sanctions will ultimately only hurt the little people. The Billionaires of the world always find a way to recoup their money. This game that is being played internationally is just that, a game, a show, something to make it appear that the west is able to dominate Russia and the countries of the Eastern Bloc…you would think the time for flexing muscles against these countries as we did during the cold war would be over…too bad we are beginning to learn differently. The rich of the world laughed and made money during the “real” cold war, and they will continue to do so now. As I said, only the hard working little people will be hurt when all of this is over, in the U.S. as well as in Russia.

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RSGmusic
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RSGmusic

HI Murph. Yea a great article on the state of Russia.
Basically Russia has very little allies in the economic world that they use to have. More nations are not like the Russian government now. Before they had lots of help.

If the sanctions keeps being applied to Russia ( Puttin will fold .)

How is that song i sent you? The children of the sea.

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