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Crimea crisis: analysts warn about sanctions
19 March 2014
Large scale sanctions are seen as a potential market threat
Baring Asset Management
Markets are being closely scrutinised for their reaction to
Russia's annexation of Crimea. A number of analysts have
observed that the impact of the crisis to date has been
limited, but most warn of the effects of large scale sanctions.
Simon Derrick, chief market strategist BNY Mellon pointed out
that Russia has yet to start seriously reducing its holdings of
dollar assets or the dollar, beyond what it has had to spend
already defending its own currency.
"As a result, central bankers throughout the developed world
are likely to be keeping a particularly close eye out for any
signs of Russian money heading their way and, no doubt, will
react accordingly if they do so."
Andrew Cole, investment director of the Global Multi Asset
Group at Baring Asset Management said that from the perspective
of Russia, the rouble has fallen sharply in recent weeks and
there is a risk that an intensification of the confrontation
and the imposition of further sanctions could further undermine
the Russian economy.
He added that the situation in Ukraine could also have negative
consequences for economies reliant on foreign trade and
investment with Russia, but believed that other factors such as
the slowdown in Chinese economic activity are of more
investment significance in the long term.
According to BlackRock's global chief investment strategist
Russ Koesterich, stock prices are close to their all-time
highs, which suggests they are not factoring in a lot of bad
news. "As such, should the situation in Ukraine deteriorate,
stocks could be vulnerable in the near term."
"In addition, there are some specific risks for Europe. Europe
imports roughly 30% of its natural gas from Russia and should
any sort of economic sanctions come to fruition, Russia could
decide to interrupt this supply.
At this point we are not expecting this to occur, but should
significant sanctions be enacted, such actions would certainty
hurt Europe's already-fragile economic recovery and would act
as a drag on European stocks."
However, Jan Dehn, head of research at Ashmore said the crisis
is a convenient vehicle for revving up negative sentiment to
support a broader unwind of pregnant positions in developed
"The story that Russia is holding the entire civilised world
hostage over Crimea, threatening the very foundations of global
security is of course a bit ridiculous. For one, West Texas
Intermediate crude would not be trading below $100 per barrel
if there was a real risk to Russian energy exports.
Russia accounts for 12% of global oil exports and is by far the
world's largest producer of gas. Russia and the West have
overwhelming incentives to compromise, but only after a
suitably public row."
Simon Colvin, research analyst Markit observed that
rouble-denominated bonds in Gazprom have started to trade at a
premium to the local Russian benchmark rates, possibly implying
that in the recent turmoil, Russian credit investors are
favouring loans backed by tangible corporate assets over those
backed by the Russian government.