The ruble and the Russian stock market, hit by the conflict with Ukraine

The diplomatic crisis between Russia and Ukraine and the threat of sanctions have hit the giant's economy hard. The Russian currency continues to depreciate and has fallen by around 5% this year, passing the barrier of 79 dollars and approaching the historical minimum change of 80.27 rubles per dollar that it marked in October 2020. On the other hand, the geopolitical context It has also had an impact against the MOEX10 index of the Moscow Stock Exchange, which in the last month has fallen by around 7.4% and since October by more than 24%, although it has recently recovered due to the possibility of a peaceful solution to the conflict . The Bank of Russia has responded by stating on Monday that it would suspend foreign currency purchases in an attempt to ease pressure on its currency and thus "reduce financial market volatility."

In this sense, the rating agency Scope Ratings indicates in a recent report that the deterioration of relations with the EU and the US could have significant repercussions for the energy sector, the banking system and the Russian economy in terms of ruble convertibility, as well as for senior Russian officials if Washington and Brussels impose tougher sanctions: "These sanctions-related and geopolitical risks represent one of the main constraints on Russia's credit rating. Existing sanctions and the risk that they "More are imposed have discouraged foreign investment. Inward foreign direct investment fell from an annual average of $55 billion in the 2010-2013 period to about $20 billion in the 2018-2021 period."

Notably, Russia has delinked from the dollar and has reduced the portion of its debt held by foreign investors. The government has carried out a conservative fiscal policy and has kept its public debt below 20% of GDP, compared with 133% in the United States, according to IMF data. Russia has also amassed a significant financial reserve, with international reserves, including gold and currency holdings, reaching an all-time high of $630 billion in December, one of the largest in the world, according to Russian central bank data. Likewise, economic cooperation with China has increased.

"Russia's strengthening public finances and the accumulation of fiscal and foreign exchange reserves have made it possible for a more self-sufficient economy to withstand international sanctions and weather the Covid-19 crisis relatively well. In addition, rising prices "Oil prices have allowed Putin's government to implement emergency fiscal stimuli to support economic recovery in the short term. The Russian economy will grow by 2.7% in 2022, after an estimated growth of 4.5% in 2021," explains Levon Kameryan, a senior analyst at Scope Ratings.

If you watched all of these as a child i fear you immensely https:// t.co/ls8dGlKneF

— raine 👍 Wed Jun 16 16:00:48 +0000 2021

For its part, the Russian stock market has fallen by around 24.5% since its peak in October, in the context of possible economic sanctions and the reduction in gas shipments that have produced an energy crisis in Europe. The MOEX10 index, made up of the main Russian companies such as metallurgical, hydrocarbon exporters and banks, closed at 5,095.45 points this Monday, its minimum this year.

The hydrocarbon companies Gazprom, Rosneft and Lukoil have a weight of around 30% of the MOEX10. In this sense, the losses of these companies since the Kremlin decided to cut its exports to the West have affected the performance of the index. Added to these losses are those caused by fears over possible economic and trade sanctions that the United States has put on the table in the face of an invasion of Ukraine. Among some of the reprisals that have been mentioned are a possible blockade of Russian banks to make transactions in dollars, the ban on exports of US semiconductors and other technological pieces to Russia and the exclusion of the country from the Swift global payment system.

After the announcement that the President of France, Emmanuel Macron, and the German Chancellor, Olaf Scholz, preferred to solve the crisis through diplomatic channels, the MOEX10 managed to recover around 3.9% this Tuesday. Some investors even see opportunities in this context. Ben Laidler, investment strategist at the eToro platform, says geopolitical threats "usually have more impact than the event itself." Laidler indicates that these types of events are rare and that during some of them (such as September 11 or the Gulf War) risk assets, such as the shares of public companies, weakened. On the other hand, the specialist affirms that safe-haven assets, such as gold and United States Treasury bonds, obtained higher returns. However, he notes that risky assets recovered quickly, and that in the 2014 invasion of Crimea they even outperformed the most defensive assets.

"The impacts are greatest and longest lasting in the markets closest to the conflict. Russia is the worst performing market this year, down 16%. This shows that even the cheapest stock market on the planet can become even more On the other hand, the conflict could worsen Europe's energy crisis and boost oil and that Russia is the world's largest oil producer and wheat exporter," adds Laidler.