Russian stocks fall sharply on back of US sanctions

EU leaders say they will introduce more asset freezes and visa bans against Russian officials

Traders on New York Stock Exchange floor. Photograph: Brendan McDermid/Reuters

Traders on New York Stock Exchange floor. Photograph: Brendan McDermid/Reuters

Fri, Mar 21, 2014, 13:24

Russian stock indexes fell sharply today as investors digested the impact of US sanctions over Ukraine, including possible moves by Washington to target whole sectors of Russia’s economy.

Earlier the rouble-denominated MICEX was down 3 per cent to 1,281 points while the dollar-denominated RTS index had fallen 3.6 per cent to 1,109.

The falls came a day after US president Barack Obama said Washington was considering sanctions against key economic sectors in Russia, including financial services, oil and gas, metals and mining and the defence industry, if Russia made military moves into eastern and southern Ukraine.

EU leaders, meeting in Brussels, have said they will introduce more asset freezes and visa bans against Russian officials, and are mulling wider economic sanctions if Russia further destabilises the situation in Ukraine.

In a morning note, Promsvyazbank analyst Oleg Shagov said Mr Obama had “opened a Pandora’s box full of sanctions”, with future sanctions to be “directed against whole sectors of the Russian economy”.

The United States also introduced asset freezes and visa bans against high-ranking Russian officials and businessmen, dubbed “cronies” of president Vladimir Putin.

A St Petersburg bank linked to these businessmen, Bank Rossiya, was also sanctioned, with US officials saying that the bank would be “frozen” from the dollar. Today, Bank Rossiya said Visa and Mastercard had stopped providing services for payment transactions for the bank.

Earlier the bank said it was working “in a stable regime”. Bank Rossiya is not listed, but the sanctions against the bank - coupled with the US threat of further measures - has raised fears that similar actions could be taken against other Russian banks, echoing US measures against Iran or Syria. Investcafe analyst Grigory Birg said in a morning note that “one can expect a sharp negative reaction in the dynamics of Russian bank shares”.

Shares in Sberbank, Russia’s largest bank, were down 2.9 per cent today, while shares in VTB were down 4.3 per cent. However the falls were broad-based, with shares in most of Russia’s blue-chips also down around 3 per cent. Gas giant Gazprom was down 2.5 per cent, oil company Lukoil down 3.2 per cent, steel company NLMK down 2.9 per cent and telecommunications company MTS down 3 per cent.

Shares in independent gas producer Novatek fell by 5.7 per cent. The company is part-owned by Gennady Timchenko, a shareholder of Bank Rossiya and one of the wealthy businessmen who has been sanctioned because of alleged links with Mr Putin.

Negative market sentiment was reinforced by warnings from ratings agencies Fitch and S&P that they were changing their outlooks on Russia to negative from stable, because of the potential impact of sanctions on Russia’s economy and business climate.

Both agencies presently rate Russia BBB. Russia’s deputy finance minister Alexei Moiseev said in response that he did not see any immediate impact from sanctions on Russia’s financial sector or creditworthiness.

In contrast to Russian shares, the rouble was stable today, having fallen steeply yesterday evening in response to the US sanctions statement, and helped by the need for Russian exporters to buy roubles to pay end of month taxes.

Reuters