Liquidity Vanishes Across Russia Assets With Ruble Plunging
(Bloomberg) — ‘Too risky to deal in’ is the mantra from foreign-exchange to equities trading floors as investors step back from dealing with Russian assets.
Most Read from Bloomberg
Spreads on the ruble have widened by eight times, with market makers from Sydney to Hong Kong pulling back, traders said. Nomura Holdings’ domestic securities arm said it will suspend taking purchase or sale orders for the time being on four investment trusts that contain Russia-related assets. Singapore said it would block certain Russian banks and financial transactions connected to Russia.
Evaporating liquidity, due to biting sanctions ramped up over the weekend, is spurring authorities to act, with Russia’s central bank announcing it would temporarily ban foreigners from selling securities. Moscow Exchange said it will start currency and money-market trading only at 10 a.m. local time, about three hours later than normal.
“Russia is simply unbankable at this stage and anyone holding Russian assets will find their book value marked at zero till we find a way out of this,” said Saed Abukarsh, chief portfolio manager at Ark Capital Management Dubai Ltd. “The overall market is unprepared for the speed of developments since the inception of the war.”
Russian assets have plummeted in the wake of the nation’s invasion of Ukraine, with the ruble’s slump making it the worst-performing emerging-market currency in February. Foreign-exchange market participants from Sydney to Hong Kong are freezing ruble trading as they mull the effects of the harshest sanctions placed on a major economy in a generation.
“When anything like this happens, we cut leverage and basically tell people to close positions. It’s just too high risk,” said Nick Twidale, chief executive Asia Pacific at forex broker FP Markets in Sydney. “No trades are coming through at all on the ruble.”
Read More: Russians Rush for Dollars as Sanctions Threaten Ruble Collapse
Equities futures slid on Monday, with European contracts falling more than 3%. Strategists are predicting fresh pressure on the region’s banks as the sanctions take effect.
“European banks may be under some pressure on Monday given some Russian exposure and concerns around what that will mean if payments are restricted,” TD Securities strategists including Rich Kelly wrote in a note. “Austrian banks are most exposed, with Russian counterparties representing 1.6% of banking assets, followed by 0.6% for Italy and 0.2% for France.”
National Australia Bank Ltd.’s Ray Attrill in Sydney was glued to his desk all Sunday in preparation for Monday’s volatility.
“We are hearing ruble being quoted in 114-119 area locally,” said Attrill, head of FX strategy and markets, who started his work day at 5 a.m. local time. Russia’s central bank may become “impotent” in defending the ruble if sanctions are successful, he said.
The rout is extending to futures markets.
CME ruble futures tumbled more than 30% after the open, though some trades are now starting to trickle through, according to Matthew Simpson, senior market analyst at City Index.
“The ruble is in a freefall as the gravity of sanctions and restrictions on Russia’s central bank take effect,” he said. “CME futures fell over 30% after the open, which is not what Russians who are queuing up at cash points across the country want to hear right now.”
(Updates to reflect trading across assets)
Most Read from Bloomberg Businessweek
(C)2022 Bloomberg L.P.