Investors avoid Russian stocks as ruble's value depletes

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Russia’s unstable stocks may have tempted U.S. fund giant Franklin Templeton but few other investors are following, as the country’s economic meltdown fuels a nosedive in its currency that could potentially render any investment worthless.
Russia’s unstable stocks may have tempted U.S. fund giant Franklin Templeton but few other investors are following, as the country’s economic meltdown fuels a nosedive in its currency that could potentially render any investment worthless.

Since then, the Russian stock market has dropped further, investors taking fright at the country’s rising inflation and evaporating growth, the result of Western sanctions over the crisis in Eastern Ukraine, which collided with a slowing economy, alongside a falling oil price.

Not only has Russia’s dollar-denominated stock index plunged more than 20% since mid-July, but the Russian ruble has fallen 17% against the dollar to new lows.

As a result of western sanctions, global markets are virtually closed to Russian companies looking to refinance dollar debt. Consequently many are resorting to selling the ruble on local markets to buy hard currency, adding further pressure on the Russian market, which may result in eventually needing cash from the central bank.

Investors are increasingly buying so-called dollar/ruble risk reversal options that demonstrate a growing bias for dollar strength and ruble weakness in coming months indicating little relief is ahead.