A bird’s eye view of Russia’s blazing trail of destruction across markets and economies.
The tragedy that we are currently witnessing in Ukraine illustrates how geo-political events can have a significant impact on markets when they erupt.
Fighting fire with… money:
Nation leaders have banded together to slap the Russian economy with sanctions, but the question fluttering around at every dining table: can it really cease a Russian invasion?
Since Russia’s bold invasion of Ukraine,
- Countries have imposed long lists of sanctions including freezing the assets of sanctioned Russian companies and oligarchs.
- The global chipmaker industry suspends deliveries to Russia following US sanctions, aimed at kneecapping Russia’s ability to diversify its economy and support its military.
- Delta Air Lines cuts ties on its codesharing partnership with Russian national airline Aeroflot; Baltic and European nations closed their airspace to Russia airlines with Estonian Prime Minister Kaja Kallas tweeting, “there is no place for planes of the aggressor state in democratic skies”.
- All across the world, firms are removing Russian sponsors, cancelling events in Russia, and distancing themselves from Russian organizations.
Though the catalogue of sanctions and company actions taken against Russia are growing – few think they’ll stop Russia’s attack, and expect these economic measures to take months or years to significantly impact Russia’s economy.
For Investors: Russian markets on fire:
In efforts to retain the Ruble in the bank, Russia has executed an unprecedented move of raising its benchmark interest rates from 9.5% to 20% in retaliation to counter further depreciation in the national currency. In the same desperate stroke, the Central Bank of Russia also ordered companies to sell 80% of their foreign currency revenues and has banned citizens from transferring money outside the country.
Despite the Russian markets being closed for weeks now, the VanEck Russia ETF (RSX) which trades on US exchanges has fallen by 60% this year. With the ban on Russian lenders from the global banking SWIFT (Society for Worldwide Interbank Financial Telecommunication), international banks’ reluctance to do business with Russian banks, and Russians rushing to withdraw USD, could there be clearer signs pointing to a deeper recession for Russia?
Crypto has entered the chat:
Both Ukrainian and Russian citizens are turning to crypto due to local restrictions on cash transfers and foreign currency withdrawals. Kapil Rathi – CEO of crypto exchange, CrossTower explains that crypto is now seen as the safer store of value by citizens with the drop in the Ruble and an unstable Ukrainian financial system.
The increased demand from both countries has driven crypto prices up:
- Ukraine employed crypto to raise over $50M for its defensive effort as of March 6.
- Russia could turn to crypto to bypass sanctions on Russian banks.
India-based Sharat Chandra, vice-president, research and strategy, EarthID, a global decentralised self-sovereign identity management platform, says, “Amidst geopolitical uncertainty, the censorship-resistance nature of distributed ledger technology and crypto has become a double-edged sword. Global sanctions imposed on Russia will have a muted impact because the Russian government has started leveraging crypto to bypass the global SWIFT banking system.
For Investors: Crypto is going to the moooon:
The strong demand for Bitcoin and other cryptos from Ukraine and Russia, coupled with US President Biden’s signing of the executive order on regulating crypto – has signalled to the masses that crypto is here to stay, sending crypto prices skyrocketing.
Russia pumping up the pressure:
Although Russia is a small player in the global economy, it supplies nearly 40% of the oil and natural gas used in the EU. Jason Furman, a Harvard economist, warns that rising oil prices could worsen inflation to the point where it runs out of control.
The Russia-Ukraine tensions has officially sent the S&P 500 into a correction – dropping 10% in January – the first correction post COVID-19. All across the world, rising oil prices will pressure household spending, impact travel plans and raise businesses costs.
How will Ukraine-Russia affect the Australian economy?
The tragedy that we are currently witnessing in Ukraine illustrates how geo-political events can have a significant impact on markets when they erupt. This transnational tension has heightened the recent volatility in Australian markets, which stems from a growing concern about the pressure on central banks to raise interest rates quicker than anticipated.
The three main areas that Australia is likely to suffer in is petrol, grain and aluminium.
- ‘Fueling’ the fire: The price of crude oil has been steadily climbing, and because Australia produces very little of it, the price of petrol will continue to rise.
- No pain no ‘grain’: The price of grain may also increase as Ukraine and Russia produces nearly 25% of the world’s supply. Although Australia produces grain locally, prices could increase if the grain is exported to supplement the sudden decrease of Europe’s food bowl.
- Taking a hit: Australia looks to take another hit on the supply chain as the large alumina plant in Gladstone, Queensland, is 20% owned by Rusal (Russia-backed). Already, the disruption in global raw material has seen aluminium prices to record peaks.
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