Russian stocks took a battering yesterday and global indexes also suffered amid increasing concerns about the spillover effects of the military crisis in Ukraine.
Russian equities fell sharply in early trading after the United States and the United Kingdom threatened sanctions in response to Russia’s military incursion in the Crimean peninsula.
The Moscow exchange’s benchmark Micex shed more than 11 per cent.
Russia’s central bank raised interest rates by 1.5 percentage points to 7 per cent during the morning after the rouble plunged to an all-time low against both the dollar and the euro. It was the first time the bank had raised interest rates in nearly 18 months.
“The decision is directed at preventing risks to inflation and financial stability associated with the increased level of volatility in the financial markets,” said a Russian central bank statement, giving no further details.
The equity sell-off spread around the world.
European bourses opened sharply down. Germany’s headline Dax Index fell by as much as 3 per cent during the day, while the UK’s FTSE 100 at one point was down by nearly 2 per cent.
While the effect of the Ukraine crisis on global markets is likely to be short-lived, a significant and prolonged impact on global financial markets cannot be ruled out, according to a research note from Capital Economics.
“Escalating tensions and risk of a wider military conflict, however small, could continue to boost demand for safe havens, including government bonds, gold and the yen, while undermining equity prices,” the note said.
Asian equities were also in the red, led by a 1.4 per cent fall on Hong Kong’s Hang Seng. India’s Sensex shed 0.8 per cent, while South Korea’s Kospi was down by 0.7 per cent.
Russia’s woes would harm other emerging market economies in the short-term, said Zin Bekkali, the chief executive of Silk Invest, a boutique investment manager specialising in frontier markets.
“Emerging markets can be a lot more correlated than many people expect,” said Mr Bekkali. “Despite the massive differences between them, they’re increasingly linked in the mind of the guy sitting in Chicago or New York who’s pushing the buttons.”
The Ukraine effect on other emerging markets is likely to be short-lived, however, with the tapering of quantitative easing by the US Federal Reserve having a far more significant effect in the long run, he said.
In the UAE, the Dubai Financial Market closed down 1.8 per cent at 4,105.9 points, while the Abu Dhabi Securities Exchange General Index was down 1.7 per cent at 4,857.79.
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Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
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