Ukrainian Crisis Is 'Shock to Emerging-Market Sentiment' ; Global Stock Exchanges Feel Impact; Ruble Falls to Record Low against Dollar

By Jolly, David | International New York Times, March 4, 2014 | Go to article overview

Ukrainian Crisis Is 'Shock to Emerging-Market Sentiment' ; Global Stock Exchanges Feel Impact; Ruble Falls to Record Low against Dollar


Jolly, David, International New York Times


The biggest impact was felt on Russian and Ukrainian markets, with Moscow's benchmark index, the Micex, dropping 10.8 percent.

The growing crisis in Ukraine hit global financial markets on Monday, unsettling investors who had already been nervous about shaky emerging-market economies.

The biggest impact was felt on Russian and Ukrainian markets, with Moscow's benchmark index, the Micex, dropping 10.8 percent and the ruble falling to a record low against the dollar. Stock exchanges around the globe were jolted, with investors selling off shares particularly in companies with exposure to Ukraine and Russia, and moving into traditionally safer assets like United States bonds and the Japanese currency.

Stocks in the United States opened lower, with the Standard & Poor's 500 falling 0.7 percent in early trading in New York.

"The escalation of the crisis is clearly a shock to emerging market sentiment," said Michala Marcussen, the global chief economist at Societe Generale. While the economic fundamentals suggest that the damage should be contained to Ukraine and Russia, she added, "we have to be aware of market psychology."

Ripples from the crisis, with Ukraine moving to mobilize its military after Russian troops and Ukrainians loyal to Moscow surrounded key military bases in the Crimea, were felt well beyond Ukraine.

In afternoon trading, the Euro Stoxx 50, an index of euro zone blue chips, was down 2.6 percent, while the London benchmark, the FTSE 100, was down 1.8 percent. Markets were also off sharply in Ukraine's neighbors Hungary and Poland.

Ukraine makes up only about 0.2 percent of global gross domestic product, according to Societe Generale, and in itself has little bearing on the world economy. Economists said the biggest danger to global growth, outside of outright war, was the possibility that sanctions or political theater could bring a disruption to the flow of natural gas to Western Europe, creating an external shock that could push the euro zone back into recession.

The crisis has energy markets worried because a large portion of Russian natural gas for Europe, which is heavily dependent on the fuel for power and industry, moves through Ukraine. Natural gas prices rose about 6 percent on the British market, and shares of Gazprom, the Russian gas monopoly that counts Ukraine as a major customer, fell more than 10 percent.

What may be keeping prices from going higher for now is that in recent years Russia has chipped away at the amount of gas that goes through Ukraine by opening the Nord Stream pipeline, which bypasses the country. In addition, because the winter has been warm, European countries have built up substantial stores of gas.

Trevor Sikorski, an analyst at the research firm Energy Aspects, estimates that Europe has 18 days' worth of gas in tanks. "The markets are jumpy because there are so many potential outcomes," he said, "but there is a bit of wait-and-see to see how bad this gets."

Oil prices also rose, with Brent crude futures traded in London adding 1.9 percent.

While many major indexes, including the Standard & Poor's 500 and the DAX, in Germany, are trading at near-record levels, global markets have become increasingly volatile of late. Jitters this year caused by serious political problems in countries like Thailand, Argentina and Turkey have been exacerbated by concerns that emerging markets will be hit by higher interest rates as the Federal Reserve reduces its monthly bond purchases.

The fresh shock to markets on Monday came amid the rising anxiety over the military standoff in Ukraine. The country is facing a possible default on its debt, and its economy was hobbled even before Russia's armed intervention.

Stocks on the Ukrainian exchange in Kiev fell 11.6 percent, and the country's currency, the hryvnia, fell to a new low against the dollar.

The interim Ukrainian government is negotiating with the European Union, the United States and the International Monetary Fund for a bailout of as much as $35 billion to get it through the next two years, and a team from the fund was to arrive in Kiev for discussions this week. …

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