The Accumulator: sea of red on Russia sanctions

Tough US-imposed sanctions on Russia combined with rising international tensions over the Syrian conflict to push global stock markets lower this week.

The UK was one of the few markets that didn't finish the week in the red. According to our Accumulator table, the FTSE 100 rose by 0.9% over the five days to 13 April - a period that was marked by geo-political tensions. 

Unsurprisingly, Russian equities sold off on the back of sanctions which included a list of seven Russian oligarchs and the companies they run, such as Oleg Deripaska. Any assets owned by the seven under US jurisdiction have been frozen and US nationals are forbidden from doing business with them.

The MSCI Russia fell 13.1% in pound terms over the week as risk aversion grew and the rouble tumbled against sterling and the dollar.

ING’s chief economist Dmitry Polevoy believes the sanctions could represent the tip of the iceberg for Russia.

‘This time the sanctions create a precedent which could be used against any Russian company without clear and transparent arguments,’ he noted.

In Polevoy’s opinion, this uncertainty could cause investors to limit exposure to Russian stocks and bonds in the future. For example, global banks’ compliance and legal teams may reduce trading activity in Russian assets to avoid any potential future headaches, creating what the chief economist describes as ‘another layer of self-made sanctions’.

So far, Russia has been reluctant to retaliate with economic measures against the US. However, Rabobank’s senior Asia-Pacific strategist Michael Every notes that Russia may now have been pushed too far.

‘Russia is considering further retaliatory measures against the US, potentially including imports and US-owned goods made in Russia, and perhaps even exports of titanium and nickel, the former of which is used in large quantities by Boeing,’ Every explained.

The oil price rose significantly on the back of the uncertainty, as investors grew concerned that oil supply could be affected. Over the five-day period, Brent crude rose 8.1% in sterling terms.

This increase is also linked to sterling strength against the US dollar. Over the past year, the dollar has depreciated by 12.1% against the pound.

You can access the Accumulator table here.