(Bloomberg) — Russian stocks extended their declines on Tuesday as investors weighed the potential for fresh sanctions after President Vladimir Putin recognized two separatist republics in eastern Ukraine and ordered forces to the breakaway regions.
The benchmark MOEX index fell 6.9%, extending its steepest slump since the annexation of Crimea in March 2014 on Monday. The ruble was 0.6% weaker at 80.2850 per dollar after falling the most since March 2020 the previous day.
The key question for investors now is how far the U.S. and its allies move on penalties in response to Putin’s decision to recognize the breakaway regions. European Union ambassadors meet Tuesday to discuss sanctions in response to Putin’s decree, although it could take days to finalize a package. Russia has repeatedly denied that it plans to invade Ukraine.
“The extent of Russian pressure is still uncertain despite the recognition of the separatist regions,” said Rajeev De Mello, global macro portfolio manager at GAMA Asset Management. “A more concerning view is that the two separatist regions claim the entire regions of Donetsk and Luhansk and send troops backed by Russia into the rest of the provinces.”
Its unclear what the U.S. and its allies would define as an invasion, and what would trigger bigger sanctions. Some European nations have been wary of the economic fallout they could face from penalizing Russia, especially given their reliance on it for gas imports.
Rusal Flashback
Shares of Russia-based aluminum producer United Co. Rusal International PJSC slumped as much as 22% in Hong Kong, the biggest fall since April 2018. Then, the company was hit by an earlier round of U.S. sanctions in response to what the U.S. Treasury then called Russia’s “malign activity around the globe.”
