Russian Financial Market Turmoil... Stock Market Plunges 10.5% and Government Bond Auction Canceled

by Park Pyunghee

Published 22 Feb.2022 07:36(KST)

Moscow Exchange MOEX Index Trend [Image source= Bloomberg]

[Asia Economy Reporter Park Byung-hee] On the 21st (local time), the pro-Russian forces controlling the eastern Ukrainian regions of Donetsk and Luhansk requested annexation by Russia, and Russian President Vladimir Putin immediately approved it, escalating tensions between the West and Russia surrounding Ukraine to a peak. On the same day, the Russian financial market plunged into chaos as the Russian stock market, bonds, and the ruble value sharply declined. While the New York stock market was closed for Presidents' Day, major European stock markets fell sharply.

According to Bloomberg and others, the Russian stock market recorded a double-digit drop that day. The RTS index, denominated in dollars on the Moscow Exchange, fell 13.2% compared to the previous trading day, and the MOEX index, denominated in rubles, dropped 10.5%. Bloomberg reported that the MOEX index's decline was the largest since the Crimea crisis in March 2014. The MOEX index had fallen more than 14% intraday but slightly reduced its losses by the end of trading.

The ruble's value against the dollar also dropped more than 3%. The dollar-to-ruble exchange rate approached 80 rubles per dollar, marking the ruble's lowest value since November 2020. The Ukrainian hryvnia also fell by 1%.

The yield on Russian 10-year government bonds surged about 0.8 percentage points, rising to the mid-10% range. The Russian Ministry of Finance canceled the scheduled bond auction that day, citing increased financial market volatility.

Christian Maggio, an investment strategist at TD Securities, predicted, "If armed conflict occurs, the value of Russian assets will fall much further than now."

The New York stock market was closed that day, while European markets suffered a severe downturn. Germany's DAX index closed at 14,731.12, down 2.07% from the previous trading day, and France's CAC40 index ended at 6,788.34, down 2.04%. The UK stock market saw a smaller decline, with the FTSE 100 index closing at 7,484.33, down 0.39%.

Oil prices rose. According to the Wall Street Journal (WSJ), Brent crude oil rose 2%, surpassing the $95 per barrel mark again. West Texas Intermediate (WTI) crude oil prices also increased more than 1% in after-hours trading.