Business

Saturday 10 December 2016

Sink, swim or be rescued - or maybe turn to Putin in Russia

Market watch Greek drag prompts Europe's biggest retreat of 2015

Published 19/04/2015 | 02:30

STRONG MAN POLITICS: Russian leader Vladimir Putin
STRONG MAN POLITICS: Russian leader Vladimir Putin

European stocks slid last week, posting the biggest retreat since they began rallying in January, as concern over Greek debt was exacerbated by declines in the US and Asia.

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The Stoxx Europe 600 Index lost 1.8pc to 403.69 at the close of trading, completing the worst week of the year. The Greek ASE Index slid 3pc, with the National Bank of Greece and Alpha Bank tumbling more than 7pc, as the country struggles to win more aid to avoid a default. Germany's DAX Index plunged 5.5pc last week - the most since 2011.

European stocks fell for a second day after reaching a fresh peak on Wednesday, taking weekly losses to 2.2pc. The Stoxx 600 is still up 18pc this year amid European Central Bank stimulus, and trades near the highest level relative to projected profits of its members in at least a decade. "We've become a bit more cautious over the past few months because markets have been rallying pretty rapidly," said Dirk Thiels, head of investment management at KBC Asset Management in Brussels. "Valuations are pricing in a lot. Stocks are still pretty close to a record."

The volume of Stoxx 600-listed shares traded was 22pc higher than the 30-day average, data compiled by Bloomberg show. All 19 industry groups fell.

Greek stocks plunged 6pc this week for the worst performance among western-European markets. International Monetary Fund managing director Christine Lagarde warned on Thursday that she wouldn't let the country miss a debt payment.

"The major macro thing at play now is the Greek saga," Thiels said. "There's a low chance of a Greek exit, but anything between that and a full-fledged rescue is also possible."

European and US stocks fell with China's index futures after regulators in the world's second-biggest economy clamped down on the use of shadow financing for equity purchases and expanded the supply of shares available for short sellers.

Russia's foreign-currency credit rating was kept one step below investment grade at Standard & Poor's as policy makers struggle to boost growth and the financial system risks weakening due to a lack of external funding amid sanctions.

The ratings company also left the "negative" outlook on its BB+ grade unchanged, according to a statement released on Friday.

That puts Russia's rating on par with Bulgaria and Indonesia.

S&P stripped Russia of its investment grade in January for the first time in a decade as plunging oil prices and sanctions over the conflict in Ukraine push the world's largest energy exporter into its first recession since 2009.

The penalties have locked Russian corporate borrowers out of international debt markets, spurred capital flight and weakened the country's currency, which lost about half of its value last year before rebounding in 2015.

"Our base case assumes that the sanctions on Russia will remain in place over the forecast horizon, absent a resolution of the conflict in Ukraine," S&P said in a statement.

The ruble, which has rallied the most in the world this year, weakened after the S&P decision. It traded down 5.1pc at 52.3350 versus the dollar in Moscow.

Authorities in Moscow predict capital outflows of $90bn this year, down from a record $154bn estimated for 2014. The central bank sees the economy contracting by as much as 4pc this year after a 0.6pc expansion in 2014.

A ceasefire in eastern Ukraine and oil prices that have stabilized above $55 a barrel have helped improve investor sentiment toward Russia. Even so, the ruble remains about 32pc weaker over the past 12 months.

Russia said on Wednesday it may return to foreign borrowing next year, reversing earlier plans to avoid international markets until 2017.

"The outlook remains negative, reflecting our view that we could downgrade Russia if external and fiscal buffers deteriorate over the next 12 months faster than we currently expect," S&P said.

"We could also lower the ratings if Russia's monetary policy flexibility were to diminish further."

©Reuters

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