Investors weigh up global strike against Russian banking system

Australian investors have traded nervously this week as the unprecedented sanctions taken by several Western governments against Russia’s banking system begin to take effect.

Australian investors have traded nervously this week as the unprecedented sanctions taken by several Western governments against Russia’s banking system begin to take effect.

As Ukrainians continue to repel Russian invaders in skirmishes across most of the country, Vladimir Putin’s administration is now being threatened by a new resistance springing up within the infrastructure of global finance.

The US, UK, Germany, France and a handful of other allied nations have sought to weaken Russia’s assault by cutting off the renegade European superpower’s access to its US$630 billion foreign reserve war-chest.

These sanctions come following the news that certain Russian banks have been booted off the SWIFT financial messaging system used by banks around the world to manage trillions of dollars worth of transactions. 

Taken together, this reprisal from the West is forcing Russia out of the global economy and diminishing its ability to protect its currency, the rouble, in foreign exchange markets.

The rouble rapidly devalued in the wake of these measures, tumbling as much as 30% on Monday and forcing the central bank to more than double the interest rate – up to 20% from 9.5% – to “offset increased risk of rouble depreciation and inflation”.

Russia’s central bank responded in other ways too, restarting a gold-buying program that had remained inactive for two years, broadening the range of assets banks can use as collateral on loans, and easing the foreign currency position restrictions placed on banks.

The Moscow Stock Exchange (MOEX) was also closed on Monday as authorities scrambled to limit the fallout, while citizens stormed into banks looking to empty their accounts. 

Investors in Australia appeared to take notice. Several superfunds revealed they are either selling down their positions in Russia or reviewing their holdings in the region as the conflict threatens to leave assets stranded. 

And MSCI threatened to remove Russia from its Emerging Companies ETF, which would see a significant amount of capital evacuated from the country.

Reserve Bank of Australia governor Philip Lowe also pointed to the conflict in yesterday’s decision to keep rates flat at 0.1%, noting that the ongoing battle has become a “major new source of uncertainty” for markets.

Even so, these macroeconomic wobbles did little to stop the ASX, which by close of trade on Tuesday had recorded three consecutive days of gains.

On Monday, the ASX 200 fluctuated before closing 51.3 points (0.73%) up, failing to capture the momentum of Friday’s US rally, which saw the S&P 500 put on 2.2%.  

Tuesday saw similar gains with the market closing 47.4 points (0.67%) higher, spurred on by strength in the tech sector.


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