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The Russia Ruble Is Set for Relief
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>>7333133 pb Putin dumping American dollar
Russian assets may have dodged a bullet as the latest round of U.S. sanctions turned out to be less sweeping than initially feared.
“The draconian sanctions that many had in their negative scenarios weren’t realized,” said Valery Vaisberg, head of research at Region, a Moscow investment house. “The ruble will probably strengthen gradually.”
The Russian currency and government bonds dropped sharply Friday after initial reports of the new restrictions, which for the first time extended to official debt. It was only after markets closed that the U.S. released the details, showing the limits were narrower than feared -- banning U.S. banks from new issues of Eurobonds but leaving the much-larger market for ruble securities, known as OFZs, unaffected.
Still, the sudden surprise from the White House last week was a rough reminder for a market that had for most of this year put aside sanctions fears to cash in on some of the highest real rates in the world. With the ruble the second-best performer among emerging-markets currencies through the end of July and local-currency bonds returned about 17%, the equivalent of $13 billion in foreign money flooded into the market by the end of July. Negative and falling returns in many developed markets only added to the enthusiasm.
For Russia, which is running a budget surplus and already placed all of its planned Eurobonds this year, the direct financial impact of the new limits is likely to be limited, analysts said.
“Wide exemptions for local Russian debt and state-owned enterprises blunt the impact of the move,” analysts at Eurasia Group wrote Saturday in a note. “But the odds have gone up that these categories could become subject to sanctions in the future.”
Together with the latest spike in trade tensions between the U.S. and China, some investors see the new sanctions scare as a compelling reason to reduce risk.
“In my view, it’s time to close EM longs including RUB,” said Nader Naeimi, AMP Capital’s head of dynamic markets in Sydney. “I closed ruble exposure in my fund on Friday together with all other” bullish wagers on emerging-markets currencies, he said.
A disturbing thing about the latest sanctions is that the term “US bank” is defined very broadly. It’s not only depositary institutions but also most non-bank fin institutions including investment companies, brokers and dealers who are very active in Russian sovereign debt market https://t.co/FUfUcwbHbv pic.twitter.com/iqaRAuGfMK
— Tatiana Evdokimova (@Tatiana_Evd) August 4, 2019
The latest sanctions had been in the works since late last year for what the U.S. and its allies say was the Kremlin’s role in a deadly chemical weapons attack against a former spy in the U.K. in March 2018. Russia denies any role in the incident.
Apparently reluctant to worsen relations with the Kremlin, the White House had held off on imposing the new sanctions until pressure from Congress to act grew last week, leading to the sudden announcement.
“The move sharply lowers the chance that hawks in Congress will pass harsher sovereign debt sanctions, even if the most ardent among them do not find the measures sufficient,” the Eurasia Group analysts wrote.
https://www.bloomberg.com//news/articles/2019-08-04/russia-ruble-set-for-relief-as-sanctions-are-more-bark-than-bite?srnd=markets-vp