Russia’s stock market dropped at a record-breaking pace and the ruble plunged hours after Moscow launched a full-scale invasion of neighboring Ukraine.
The Moex index fell 45 per cent in early European trading, while the ruble tumbled to record low against the dollar after Vladimir Putin said he had decided to conduct a “special military operation” to demilitarize and “de-Nazify” Ukraine.
Shares in oil and gas majors plummeted, with Gazprom down 48 per cent, and Lukoil and Novatek both more than 40 per cent weaker, leaving the Moex down 56 per cent since the start of the year. The scale of the shock to markets suggests that investors had expected the Russian president to back down.
“You have the panic button being hit right now, I don’t think the market was pricing at the risk of a proper military conflict,” said Emmanuel Cau, head of European equity strategy at Barclays. “For the time being, it’s hard to see what could be a trigger for the market to stabilize.”
The Moscow exchange had earlier halted operations after the ruble fell by 3.5 per cent to more than 84 to the dollar following reports of explosions in several Ukrainian cities.
Russian bond prices also fell, sending yields to their highest levels since 2015. A 10-year bond yield climbed to 10.9 per cent as markets reopened after Wednesday’s public holiday and markets reacted to fresh sanctions preventing US and EU investors from trading any new Russian debt issued from the start of March onwards. Some fund managers think that move could be a prelude to stricter curbs that ban them from buying or selling existing debt.
Now that Russia has attacked Ukraine “the sanctions hit is going to be significant unlike the soft sanctions imposed on Tuesday and Wednesday,” said Charlie Robertson, chief economist at Renaissance Capital.
The central bank has largely stood by in recent weeks while the ruble has weakened, choosing not to intervene in an effort to prop it up. But on Thursday the central bank said it would step in “to stabilize the situation on the financial market”.
Ukrainian bonds also extended their recent declines, with the price of a bond maturing in 2032 falling to 62 cents on the dollar. A “full-blown war” would likely cause Ukraine to default on its debt, Robertson said.