“The United States and Europe are threatening to cut Russia off the Western financial system and restrict oil and gas exports. Sanctions leading to restrictions on trading in Russian bonds, which would lead to massive sell-offs by developed world institutions, are also possible, ”says Fichtner analyst Tomáš Tyl. According to him, sanctions would have a major impact on the prices of Russian shares and bonds, as well as on the Russian economy and financial system.
Banks in particular are at the epicenter of investor skepticism. Sanctions could include cutting off the Swift international payment system. “It would deal a fatal blow to Russian banks. In fact, it is the economic equivalent of declaring war, “recalls Cyrrus’s portfolio manager Tomáš Pfeiler. A symbol of threats to the sector, for example, is the 20% fall in Sberbank shares in January.
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The Kremlin is already struggling to borrow new money only at dramatically rising interest rates. While at the beginning of January the Russian government was able to borrow for just five years at an annual interest rate of just over eight percent, in the middle of the month, investors demanded interest approaching ten percent for the same paper. Similarly, loans to other maturities have become more expensive for Russia. Investors are preparing for a situation where Russian state bonds would collapse like dominoes.
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“In response to the sanctions, the bonds could be excluded from various indices, resulting in widespread sell-offs by the funds. This would lead to a massive increase in bond yields there. Russia’s public finances would thus come under enormous pressure, “recalls Cyrrus’s portfolio manager Tomas Pfeiler, adding that the relatively good news for the Kremlin is that the vast majority of Russia’s debt is held by investors there, who are more stable creditors than foreign ones.
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Moreover, the Russian conflict is coming at the least opportune time for the Kremlin. Global capital is at a disadvantage in emerging markets, to which Moscow still belongs. For the past year alone, for example, the MSCI stock index, which maps emerging markets, has fallen by almost 14 percent. By contrast, world stocks as a whole rose by more than 13 percent over the same period.
“Burmese people are avoiding developing countries that are fighting high inflation. This is exactly the case in Russia, where prices rose by 8.4 percent year on year in December, “adds Pfeiler. However, according to economists at the moment, the basic scenario remains that there will be no conflict between the two countries.
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