Russian stock exchange reopens but it’s anything but usual

Foreign investors also hold more than $80 billion of Russian stocks. Therefore, if the stock exchange reopens to stock trading, they will also suffer heavy losses.

The value of shares of listed Russian companies has been decimated since the invasion. The value of Russia’s largest bank, Sberbank, for example, plunged more than 96% and energy giants Gazprom nearly 90% and Rosneft almost 50%.

The trillions of rubles that the Bank of Russia has set aside to support its actions when trading resumes will be helped by a ban on sales by foreigners, but it is inevitable that even with limited trading and probably some limits on price movements, Russian investors themselves will experience significant wealth destruction.

Russia has so far avoided a default on its sovereign debt, but still has more than $600 million in interest payments due this month and a $2 billion principal payment early next month. .Credit:PA

The collapse in the value of its currency, soaring bond yields (the Bank of Russia’s benchmark interest rate is now 20%), and the Western ban on investing in new issues of Russian debt will strangle Russia’s financial system and economy the longer sanctions and Russia’s responses to them remain in place.

So far, Russia has avoided defaulting on its sovereign debt. It made a $117 million interest payment on two of its dollar-denominated bonds last week, via JPMorgan (which had to seek US government permission before transferring the funds to Citigroup for distribution to investors) .

It does, however, have over $600 million in interest payments due this month and a principal payment of $2 billion early next month (with 30-day grace periods) and investors will be eager to see if he makes these payments and, if so, whether he pays in dollars, euros or rubles.

Russia is paying a high price in financial and economic terms for its decision to invade Ukraine, a price that will increase over time.

Some of Russia’s debt agreements allow payment in its own, now heavily devalued, currency. Russia has warned that Western sanctions could prevent it from making US dollar-denominated payments to foreign creditors and has also threatened to either make ruble payments, even on bonds that do not offer this payment option or to keep payments in escrow accounts. (accusing the sanctions of not being able to transfer them to the creditors) as long as the sanctions apply.

At the very least, a payment in rubles when the contract requires dollars or euros would be a technical fault. Missing a payment would be a real default, the first for Russia since the Russian Revolution.

He appears anxious not to trigger what would be one of the largest and most impactful sovereign debt defaults in modern history and could have a cascading effect on Russian public and private companies. Between them, Russia’s government and businesses have about $150 billion in foreign currency debt, although domestic investors hold the majority of its public debt.

It has also imposed capital controls and ordered its companies holding foreign currency cash to repatriate most of it to try to rebuild its foreign exchange reserves after sanctions returned more than half of its $640 billion in cash. untouchable reserves.

The value of the ruble has collapsed by almost 30%.

The value of the ruble has collapsed by almost 30%.Credit:Bloomberg

Russia wants to be able to defend the ruble and pay for the goods and services it needs from the rest of the world and try to avoid the hyperinflation that could come from the collapse in value of its currency. Russia’s inflation rate was just under 10% before the invasion, but it has since jumped to over 12.5% ​​and will almost inevitably rise.

Russia is paying a high price in financial and economic terms for its decision to invade Ukraine, a price that will increase over time. The West is of course not immune to foreign investors facing multi-billion dollar losses on their Russian exposures, although these losses are quite widely spread.

Rising oil and other commodity prices are also translating into higher inflation rates and energy and food shortages across much of the world and pushing up interest rates in the developed world. .

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On Monday, US 10-year bond yields hit 2.3%, their highest level in nearly three years, as Federal Reserve Chairman Jerome Powell signaled the central bank would consider raising rates more aggressively than she had previously envisioned.

The true weight of the sanctions and their impact on Russian markets and the economy will fall on ordinary Russians, however, who do not yet seem to appreciate what their country is doing in Ukraine or how much they themselves will suffer as a result.

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