Russia allows ruble to fall, stokes uncertainty
Russian Ruble - 2 year chart
Russia’s central bank today raised rates to 12% in an effort to prevent further weakening of the Russian Ruble. The central bank is stated to have spent 7 billion in central bank reserves to dampen the selling of the Ruble vs the US Dollar. Since Russia’s main exports are oil and gas, its understandable why the Rouble may be selling off. With the prices of commodities dropping heavily in the past few months, One can expect Russia’s rouble to continue declining.
Several reasons why there might be a run on Russia’s rouble
- The country is in a state of deleveraging, Investors are unwilling to park their cash in the Russian stock market or industry given the uncertain environment in Russia.
- In states of deleveraging, Roubles will often be exchanged for other currencies with less foreign exchange risk such as the dollar, the euro and possibly the yen.
- Russia’s stock market is down over 65% year to date, this is with stock exchanges open and closed when the government pleases.
- Artificial exchange rates are created by Russia’s central bank. Russia wants to maintain a steady rouble per US Dollar exchange rate but will not be able to (over time) maintain this exchange rate. Market forces will eventually dictate where foreign exchange rates should go. The Ruble should weaken after excluding the intervention from the Russian Central Bank. (Same thing is happening with China and Japan except in the reverse).
Trading theme: Avoid buying RSX (Market Vectors Russia ETF)
November 15, 2008 at 5:33 pm |
CNBC recently reported on a Russian fertilizer company owner who bought a beach side mansion for $100 million USD. Then again, that was also the time when I sold my POT leap when the stock was trading around $240. I was lucky on that trade, POT started to tumble two days later. As of Friday’s close, POT closing price was $69.81.
Like Australia, Russia has placed too much emphasis on commodities.