By Jason Bush and Olga Popova
MOSCOW, March 14 Russian stock indexes hit their
lowest levels since 2009 on Friday before clawing back some
ground, two days before a referendum in Crimea that is expected
to provoke western sanctions against Russia.
The rouble was also down despite a central bank decision to
keep an emergency rise in interest rates in place for the coming
months, with sentiment hurt by reports of lists detailing from a
handful to dozens of senior officials affected by sanctions.
Share indexes fell around 5 percent in the morning but had
partly recovered in the afternoon after immediate selling
pressure linked to daily margin calls faded, and with investors
still uncertain over the implications of Crimean developments
for investors in Russia.
At 1100 GMT the MICEX stock index was down 2.2
percent at 1,191 points, while the dollar-denominated RTS index
had fallen 2.6 percent to 1,023 points.
"People are panicking because of probable sanctions and
international isolation. Who will need these shares then?" asked
a trader at a western bank in Moscow.
Oleg Dushin, chief analyst at Zerich Capital, said: "The
main thing to fear is the reaction of western countries next
week to the (Crimean referendum) result."
"In fact the reaction so far hasn't been the toughest, but
the uncertainty about this frightens investors."
Officials told Reuters on Friday the European Union had
drawn up a list of 120-130 names of senior Russian officials who
could be hit by sanctions.
EU foreign ministers are due to meet on Monday and are
expected to introduce asset freezes and travel bans on Russian
officials seen as implicated in Russia's takeover of Crimea.
They have warned of possible further measures affecting economic
relations more broadly.
On Thursday U.S. Secretary of State John Kerry said
sanctions against Russia "could get ugly fast" if it failed to
show signs of compromise in the Crimea stand-off.
A banker in Moscow told Reuters that there was a real risk
that international investment banks would have to pull out of
Russia if East-West relations kept deteriorating.
"The fear is that everything stops, all trade stops, Russia
becomes isolated ... Then banks would have to pull out."
"There are no loans, no equity transactions, no nothing
going on," the banker said.
However, some market participants said investors were not
convinced that western sanctions would be damaging economically.
"Investors don't especially believe in serious economic
sanctions," said Maxim Gulevich, general director of UBS
Securities in Moscow.
"They think the sanctions will be political. Therefore there
are quite a lot of brave people who are either buying, or are
interested in buying particular shares."
Russian stock indexes have lost around 16-17 percent this
month since President Vladimir Putin received authorisation from
parliament to send troops into Ukraine, and pro-Russian
authorities in Crimea prepared a referendum to join Russia, a
move western countries condemn as illegal.
Russian markets are also reacting to negative moves in
global markets, following falls of more than 1 percent on Wall
Street on Thursday, and declines in Asian markets on Friday
after weak Chinese industrial and retail data reinforced
concerns about China's slowing economy.
Shares in some less liquid stocks such as utilities and
metals producers, which are typically volatile, fell by over 10
percent on Friday, before recovering some ground to leave them
down 6-7 percent. However, the sell-off was indiscriminate.
"On the whole, shares are falling irrespective of sector,"
said Konstantin Chernyshev, head of research at Uralsib.
"Of course illiquid shares in such a situation feel very
bad, but it's liquid ones as well, because when investors begin
to close their positions in such a period of turbulence they
sell liquid shares first of all."
Dushin from Zerich said Russian banks had been badly hit
because they were seen as vulnerable to possible financial
sanctions, and they have significant operations in Ukraine.
Sberbank was down 3.2 percent and VTB
down 4 percent.
In contrast some export-oriented companies that are seen as
less politically exposed have seen buyers, Dushin said, citing
oil company Lukoil, which was up 1 percent.
Standard Bank analyst Tim Ash said in a note that whatever
the final outcome of the Ukraine crisis, there would be a
permanent cost for Russian financial markets.
"Foreign and local investors are voting with their feet -
and leaving Russia," he wrote. "This crisis will inevitably
change risk perceptions of Russia, negatively, and these
perceptions will be very difficult to overturn, i.e. there will
be lasting damage to Russia from this."
Russia's former finance minister Alexei Kudrin told a
meeting of Russian businessmen on Thursday the threat of western
sanctions was causing higher international borrowing costs for
Russian companies, and that further sanctions would lead net
capital outflows to reach around $50 billion per quarter.
In a report on Friday, Renaissance Capital estimated that
the capital outflow in the first quarter will exceed $55
billion, compared with $63 billion in the whole of 2013.
RATES ON HOLD
The rouble showed no reaction to a central bank decision to
leave its key lending rate unchanged and an announcement that
the bank did not intend to reverse a recent steep interest rate
hike in the coming months.
On March 3 the central bank raised the rate to 7 percent
from 5.5 percent, as a temporary measure to stem large-scale
capital flight that is putting downward pressure on the rouble.
Over recent days the rouble has been buttressed by heavy
central bank interventions aimed at keeping it within a floating
corridor against a dollar-euro basket. The rouble was at the
edge of the corridor on Friday, implying that the central bank
was carrying out unlimited interventions to support it.
The rouble was down 0.1 percent at 36.64 against the dollar
and down 0.2 percent at 50.88 against the euro.
It had fallen 0.2 percent to 43.05 against the dollar-euro
basket, implying that the central bank had moved the
corridor by a further 10 kopecks on Friday morning in response
to its continuing interventions.
The central bank said the corridor stretched from 35.95 to
42.95 as of Thursday. It also announced on Friday that it had
expended $2.66 billion in forex reserves on Wednesday,
signifying large selling pressure on the rouble.