Anti-Russian sanctions and retaliatory measures have changed the conditions under which the Russian financial market exists. On March 10, Russian Finance Minister Anton Siluanov said that Western countries have launched an economic war against Russia. The $300 billion foreign currency reserves of the Central Bank of Russia were “frozen” or, in other words, stolen. All operations of the Central Bank of the Russian Federation were embargoed, including attempts to sell monetary gold stored in Russia. Any company, dealer in the gold market is automatically subject to US sanctions when trying to trade Russian gold. The London Bullion Market Association has suspended the status of trusted suppliers (LGD) for six Russian precious metals mills. This will affect the price of our gold.
International rating agencies Standard & Poor’s, Moody’s and Fitch almost simultaneously defaulted on the Russian Federation’s sovereign credit rating and subsequently downgraded its corporate ratings. And this despite the fact that the volume of international reserves of Russia of $ 640 billion significantly exceeds its external (public and corporate) debt! Money invested in government bonds of Western European countries and Western banks with the highest credit ratings was banally blocked. Realizing that the country has been living under sanctions since 2014, and realizing that the US President periodically launches special operations, the question is why the Federal Reserve has not partially withdrawn our reserves from assets that have turned from risk-free to toxic. remains open at once. Also, in January this year, the volume of Russian investments in US government bonds increased month-on-month to $4,503 billion.
The special operation in Ukraine caused panic in the financial markets. Western investors, who previously actively bought federal bonds and stocks of Russia’s leading issuers, tried to get rid of these assets, causing a crash in all markets. Thus, the next day, the stock market fell by 40-50%, the ruble exchange rate fell, exceeded 120 rubles/dollar, and the prices of precious metals, especially gold, rose. No wonder the gold price is seen as a measure of investors’ fear. The price exceeded $2,070 per TL. ounce.
Among the more than five thousand sanctions imposed on Russian financial institutions and other organizations: the disconnection of leading credit institutions from SWIFT, which deprives them of the opportunity to transact in US dollars, the ban on the import and sale of cash dollars to Russian financial institutions , any agreement with the Central Bank of Russia transaction ban. The list of them could go on for quite some time. It is important to note that they all aim to suffocate the Russian economy financially.
All this could have happened less painfully if the Bank of Russia had at its disposal reserves that the “Western partners” had so rudely blocked. But in today’s globalized economy, everything is interconnected. If we have invested in the bonds of Western states, their investors have also actively bought sovereign Eurobonds and corporate bonds.
Thus, the bank Tinkoff Credit Systems placed eurobonds in dollars with a coupon of 9.25% per annum – for securities with such a yield, European investors lined up and bought their entire issuance. The Eurobond market of Russian issuers has always been attractive to foreign investors.
One of the most important protective measures implemented by the Central Bank of Russia under the sanctions was the prohibition of paying Russian shares and bonds in foreign currency to non-residents of Russia. In Russian rubles – please.
It is an indication that on March 17, Russia had to pay a coupon of 117.2 million dollars to sovereign Eurobond holders. Under the terms of issue of these securities, if the issuer borrows from investors in US dollars, both coupon payments and the debt itself (the bond face value) are made in the same currency. This is supposedly rigidly fixed. issues contracts (obligations assumed by the issuer). If this condition and any other (delay in payment date etc.) is violated, this situation is perceived as “technical default” by the trustees protecting the rights of the investors. If this is a sign of future bankruptcy, the issuer may be declared a so-called. The “counter-default” offers him even bonds that are not yet due for early redemption. It is clear that no company could withstand such a “creditor raid” without outside help.
The Ministry of Finance of the Russian Federation, realizing that the Central Bank did not have the money to pay coupons in foreign currency, acted very cautiously, avoiding a technical default. Prepared a payment order for bondholders of $117.2 million as well as a Central Ruble payment order for a foreign bank, which is the payment intermediary for this issuance of Eurobond. Bank of the Russian Federation. There’s no reason to declare a default: If you want to get a coupon in dollars, unlock our reserves. Otherwise, you will receive a payment in rubles at the Central Bank exchange rate.
It is clear that the USA has instructed the bank payment intermediary to make payments in dollars, unblocking the reserves of the Russian Federation. A week later, the situation repeated itself – on March 17, a payment of $ 65,630 million was made.
Russia found a reasonable response to the sanctions. Response measures include an offer to pay European gas importers in rubles by purchasing their supply on the Moscow Exchange. In fact, this is equivalent to 100% sales of export proceeds. On this news alone, the ruble has strengthened to just under 90 rubles/dollar.
It should be said that the most aggressive foreign investors began to buy Russian and Ukrainian Eurobonds, the price of which “falls sharply”. Well, the words of Baron Rothschild are confirmed: “When blood is spilled in the streets, you have to buy.”
This is the general background of events that affect the behavior of investors. It is clear that the demonstrations collapsed on the first day after the announcement of the special operations. The most aggressive investors began to buy them, not yet imagining the scale of the declared economic war on Russia. It is worth noting that the Central Bank loan has stopped trading to avoid panic selling, and the Moscow Stock Exchange has not been operating for almost a month.
Before the Moscow Stock Exchange opened on March 24, the Bank of Russia announced that it had taken measures to prevent the market from crashing: a ban on short selling, a ban on selling securities by non-residents. Only the shares of the 33 largest companies included in the index of the Moscow Stock Exchange were accepted for trading. Auctions continued for part of the day – only until 14-00.
The market opened with an expected growth of 15-20% for the shares of large companies that are raw material exporters. Shares of MMC Norilsk Nickel, Gazprom, Lukoil and others rose. Banks that fell under the sanctions did not feel good. The main thing is that traders who are locked into positions can safely close them. The most aggressive market players began to actively buy the exporters’ shares. The next day, March 25, the situation changed – the players began to make a profit.
On Monday, March 28, currency trading was mostly marked by sales. This was partly caused by the drop in oil prices due to the lockdown announced in China due to a novel coronavirus outbreak. But there were also purchases. Particularly actively bought shares of mineral fertilizer manufacturers – Acron’s shares increased by 40%. Shares of Orgsintez, PhosAgro, Kuibyshevazot and computer security companies also rose. The blue chips had fallen. Today, the list of traded shares has expanded significantly.
Overall, the sentiment for past trades is uncertain – something is up, something is down, but the market is very weak: Monday’s trading volume was twice as low as in previous trading sessions.
It is clear that, along with the ban on the sale of shares by non-residents, the decision of the Central Bank of the Russian Federation to repurchase and repurchase shares for 1 trillion rubles from the funds of the National Welfare Fund. By issuers, the market is holding back from a full-fledged decline.
Remembering the 2008 crisis, I cannot make a comparison with the current crisis. In 2008, the Russian market was in decline as international investment funds sold Russian assets due to the problems that started in the US subprime mortgage market, although it had nothing to do with Russia. However, Western investors sold all risky assets in emerging markets, including Russia. The decline was rapid – the RTS index was falling 5-10% per day and it continued for half a year. As a result, the RTS index fell fivefold.
The current crisis in the Russian stock market is due to the current geopolitical situation, as well as future problems from unprecedented sanctions. The reasons for this are much deeper and more serious than in 2008. Obviously, our market will have to earn the trust of major investors for a long time to come.
On the other hand, there are already 17 million securities investors in Russia. I express cautious hope that if the geopolitical situation normalizes and sanctions are partially lifted, it will be possible to count on the restoration of the Russian securities market. It is clear that the shares of exporters of raw materials, oil, gas, metals and fertilizers will be in demand not only among Russians, but also among foreign investors.
But the problem is not only in the Russian economy: the sanctions imposed on Russia have the opposite effect – an increase in energy prices in Western countries will inevitably lead to an increase in inflation. The US Federal Reserve’s hawkish rhetoric to tighten monetary policy in the face of record inflation in the last 40 years is already worrying investors. At the same time, if the leading economies of the West cannot cope with the recession, the world economy may plunge into a deep crisis.
Under these circumstances, I can recommend the use of protective strategies: purchases of bonds and shares of large companies – raw material exporters, shares of precious metals and their producers, bank deposits.
The author expresses his personal opinion, which may not coincide with the editors’ position.