Reuters
Military tensions and a worsening economy put Russian dollar-denominated stocks on track yesterday for a 4% loss on the month, bucking broader emerging equities that were poised for their seventh straight month of gains.
Russia stands accused of sending troops into Ukraine to shore up a separatist rebellion that had appeared to be ebbing.
That has sharply escalated the five-month conflict over eastern Ukraine and raised the spectre of fresh sanctions from the West. “If you look at Russia from a bottom-up perspective, it’s gone from bad to worse,” Benoit Anne, head of emerging markets strategy at Societe Generale, said, although “the crisis has struggled to take it to the status of a global markets event.”
The rouble fell 0.35% against the dollar to touch a fresh record low while dollar-denominated Moscow stocks hit a two-week low and were down 0.7% after Thursday’s 2% fall, eyeing losses for the week of 4%.
Russian dollar bonds too have slipped in price since news of the military incursion, with yield spreads over US Treasuries widening 20 basis points over the week.
Russian 10-year rouble debt yields rose 11 bps after a 35-bps jump on Thursday.
Broader emerging markets have remained relatively unruffled however, with MSCI’s emerging equity index trading just off Thursday’s three-year highs, helped by a rise in Chinese stocks and by a fall in safe-haven US 10-year yields. The emerging stocks index is heading for its seventh straight month of gains and is up 8.5% year-to-date.
Turkish stocks rose 0.7% to three-week highs, after data showing a narrower than expected trade deficit in July.
Emerging European currencies were steady to slightly firmer.
The zloty, seen as a proxy for contagion to central Europe from the Ukraine crisis, hit five-month lows early yesterday.
But it trimmed losses following data showing growth up a stronger-than-expected 3.3% year-on-year in the second quarter.
The rand, which Anne said was benefiting from safe haven status due to its distance from Ukraine, reached an 11-day high. But South African stocks hit 2-1/2 week lows.