Russia’s Spoiled Food Fight Fling
Russian shares down double-digits remained at the bottom of the main MSCI regional pack and also smeared Central Europe markets as it banned all US and EU fruit and vegetable imports in retaliation for broader state bank and energy sector sanctions after Eastern Ukraine rebels felled a civilian airliner with Moscow-supplied missiles. The economy will tip into recession according to consensus forecasts as auto sales and oil output drops batter the PMI barely at 50 with the services component already below that mark. Food prices will spike with the closure and along with currency depreciation may send inflation toward 10 percent. The ruble dropped 5 percent against the dollar in the immediate wake of the Malaysia Airlines devastation and the intervention band was further widened in mid-August as $50 billion has already been drawn from reserves out of the $475 billion pile, only half thought to be liquid and usable with gold and commodity stabilization allocations. During the 2008-09 crisis the stash was depleted $200 billion, which coincides with the upper range estimate for capital flight this year. Foreign investors still control about one-third of the $600 billion stock market and one-quarter of local government bonds, even as MSCI has created a new ex-Russia gauge for global exposure and several OFZ auctions have failed on premium demands. Heavyweights Sberbank and VTB stayed in the normal index, and the Finance Ministry has pared domestic borrowing on near 10 percent benchmark yields and a 1.5 percent of GDP budget surplus through the first half on higher petroleum earnings with dollar conversion. As a backstop private pension fund accounts will again go next fiscal year for public social security payments as the original multi-pillar plan is unwound. Boycotted Rosneft has $20 billion in loans due in the next six months as less than $10 billion in external bank and corporate bonds have been placed through August, with $170 billion outstanding from mostly quasi-sovereign issuers. Rosneft’s potential cash squeeze has been worsened by a $50 billion international arbitration award to the former owners of Yukos it took over under murky circumstances. Moscow can appeal but assets can be seized to satisfy the judgment in the interim, as the European Human Rights Court also found for the plaintiffs with EUR 2 billion in damages.
Ukraine’s government bond sales too have foundered as the currency is off 40 percent against the dollar, and the central bank has resumed intervention against IMF wishes and threatens to impose additional capital controls. Russian banks may rethink their presence as Greek groups under their rescue provisions must close subsidiaries with NPLs at 40 percent of system equity according to Fitch Ratings. Both Russia and Ukraine were shunned in EMPEA’s first half global venture fund-raising and investment tally as Asia took three-quarters the total and Africa’s haul was a record 10 percent. In the period $20 billion was mobilized for a 50 percent increase as big-name buyout vehicles experimented with new industry and geographic tastes, the association remarked.
