Russian Stocks - Blood In The Streets

Russia's central bank raised interest rates last Friday from 9.5% to 10.5% in an effort to support the falling currency and battle inflation.  When that did nothing, they shocked markets by raising it again overnight from 10.5% to a whopping 17% in what some are calling an emergency move.  This was their sixth interest rate hike this year to support the currency.

The central bank early on Tuesday also increased the maximum volume of foreign currency it provides to Russian banks via its foreign-exchange repurchase agreement auctions for 28 days to $5 billion from $1.5 billion.

Sadly the RUB/USD barely moved. (left image - click to enlarge)

Russia's economy still depends in large measure on sales of oil and gas, which account for about two-thirds of exports, despite liberal policymakers calling for structural economic reform for years.

That means swings in global oil prices have a significant impact on Russia's balance of payments, and therefore the rouble exchange rate.  This will continue to worry investors that companies may not be able to pay their debts.  While Russia has little debt and large cash reserves, one can imagine those reserves must be draining quickly.

Some may have wondered if the Russian ETF $RSX had a capitulation move yesterday but the currency pair this morning has shrugged off the move completely. (right image)  A definite sign that money continues to flee the country enmass.

While crude oil continues to fall, the pressure mounts for Putin to cut crude oil production which represents 60% of the countries exports as Putin's popularity continues to drop.

Russian stocks (not in the energy sector) are also showing the same pain include Sberbank ($SBRCY), Mobile TeleSystems ($MBT),  VimpelCom ($VIP), Millicom International Cellular ($MICF) and Internet search player Yandex ($YNDX).  Are you into buying when things are hated and there's blood in the streets?  These along with $RSX may be names you may wish to research further. 

How low will they go?  Just ask Putin.  One thing is for certain, the bottom is at zero.

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