Russia: Stocks extend slump as Ukraine tensions ratchet higher

[SINGAPORE] Russian stocks extended their declines on Tuesday (Feb 22) as investors weighed the potential for fresh sanctions after President Vladimir Putin recognised 2 separatist republics in eastern Ukraine and ordered forces to the breakaway regions.

The benchmark MOEX index fell 6.9 per cent, extending its steepest slump since the annexation of Crimea in March 2014 on Monday. The ruble was 0.6 per cent weaker at 80.2850 per dollar after falling the most since March 2020 the previous day.

The key question for investors now is how far the US and its allies move on penalties in response to Putin's decision to recognise the breakaway regions. European Union ambassadors meet Tuesday to discuss sanctions in response to Putin's decree, although it could take days to finalise a package.

Russia has repeatedly denied that it plans to invade Ukraine. "The extent of Russian pressure is still uncertain despite the recognition of the separatist regions," said Rajeev De Mello, global macro portfolio manager at GAMA Asset Management. "A more concerning view is that the 2 separatist regions claim the entire regions of Donetsk and Luhansk and send troops backed by Russia into the rest of the provinces."

It is unclear what the US and its allies would define as an invasion, and what would trigger bigger sanctions. Some European nations have been wary of the economic fallout they could face from penalising Russia, especially given their reliance on it for gas imports.

Rusal flashback

Shares of Russia-based aluminum producer United Co Rusal International PJSC slumped as much as 22 per cent in Hong Kong, the biggest fall since April 2018. Then, the company was hit by an earlier round of US sanctions in response to what the US Treasury then called Russia's "malign activity around the globe". BLOOMBERG