Russian Markets Shake Off Sanctions Reports Before Biden-Putin Talk
Russian markets brushed off reports that the U.S. and its allies are considering sanctions targeting the country’s banking sector should President Vladimir Putin invade Ukraine.
The benchmark MOEX Russia Index rose rose 0.8% to 3,840.97 at 1:19 p.m. following a decline of 2.6% on Monday, while the ruble was down 0.2% to 74.4050 per dollar.
Sanctions including against some of Russia’s largest banks and the country’s ability to convert rubles for dollars are among the options that President Joe Biden may spell out when he speaks with Putin on Tuesday, according to people familiar with the matter, who asked not to be identified to discuss private talks.
Investors are taking sanctions threats “moderately” seriously, according to Paul McNamara, a money manager at GAM Investments. It would be “very difficult to make a case for Russian assets if pretty much any of this stuff is imposed,” he said.
State-owned Sberbank PJSC, Russia’s biggest lender, was up 0.7% to 306.90 rubles in Moscow trading after closing down 4.8% on Monday following initial reports of possible sanctions. Number two bank VTB Group, which is also owned by the government, rose 0.1% after a 1.8% decline Monday.
Still, jitters were visible in the local bond market where yields on 10-year debt climbed for a second day, taking their increase this week to almost a quarter-percentage point.
“The Russian market is oversold on negative expectations, but if geopolitical rhetoric softens, the growth potential is enormous and can be realized very quickly,” Alexander Losev, chief executive at Sputnik AM in Moscow, said. “The markets have succumbed to emotion, but the voice of reason still resounds in the minds of many investors.”
The threatened sanctions would be “reasonably severe” for Russia, although a complete ban on ruble exchange is unlikely given Europe’s dependence on Russian energy supplies, according to former senior central bank official Oleg Vyugin.
“I see this to a great extent as a political game,” Vyugin said. “Before the two presidents meet, it is necessary to publicly state that their retaliatory actions can be very tough.”
While a war between Russia and Ukraine could be sparked by accident due to the rising tensions, an escalation isn’t in the interests of the Moscow or the West, according to Ivan Timofeev, analyst at the Russian International Affairs Council, a Kremlin-founded research group.
“The option of tough sanctions without war is still out of the question,” Timofeev said on Telegram. “Despite the pretty pictures in the media with maps of the Russian offensive, a war scenario is unlikely.”
Kremlin spokesman Dmitry Peskov declined to comment on the reports of planned sanctions, saying the “emotional statements” of recent days wouldn’t affect the talks.
“It’s obvious that if the presidents are having this conversation, they intend to discuss the issues and not drive things into a dead end,” Peskov said on a conference call with reporters Tuesday, while warning against expecting breakthroughs.
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