Seeking Alpha

S&P cuts Russian rating to one notch above junk

  • S&P has reduced Russia's rating by one notch to BBB-, or one grade above junk level, and kept the country's outlook at negative.
  • The agency cited the risk of further capital flight due to the Ukraine crisis. In Q1, outflows doubled on year to $50.6B and the government has forecast that the full-year figure could hit $70-100B. An increase in sanctions on Russia could also prompt S&P to further reduce the country's rating.
  • S&P's action comes a day after Russia began military exercises on its border with Ukraine in response to the latter's security forces killing five pro-Moscow rebels during its attempts to reassert control over the eastern part of the country. The developments have increased fears that Russia may invade eastern Ukraine, the nation's industrial heartland.
  • Russia's Micex index is -1.6% and the USD-RUB is +0.4% at 35.925 rubles.
  • More on Ukraine ETFs: RSX, RUSL, ERUS, RUSS, RSXJ, RBL, GUR, ESR, RUDR
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Comments (14)
  • Andrey Udovitskiy
    , contributor
    Comments (21) | Send Message
     
    All Russian assets investors should also pay attention to today's Central Bank of Russia session in regards to any changes to the monetary policy and measures to drive the liquidity for the banking sector. Although the policy rate is expected to remain the same.
    25 Apr 2014, 03:12 AM Reply Like
  • fxfx
    , contributor
    Comments (1209) | Send Message
     
    A clearly politically motivated (directed from D.C.?) downgrade by S&P to make it harder for Russia and Russian companies to access the capital markets. they will survive that. But what about S&P? Does actually anyone still pay attention to the corrupt and crooked U.S. rating agencies? I mean, apart from those who are managing other people's money and rely on these ratings for excluding or including certain bonds. Which is going to end anyway over the next decade or so.
    25 Apr 2014, 07:49 AM Reply Like
  • Land of Milk and Honey
    , contributor
    Comments (5787) | Send Message
     
    fxfx

     

    Nope, it's not clearly done by government at all in an indirect way. You didn't include the obvious direct impact; there are sanctions lined up at Russia which SnP in the article points to as the risk factor, along with a bunch of other very real factors. Nothing secretive or on the side about it.

     

    A bunch of companies downgraded Russia, and accusing others of "corruption" requires more than guessing, such as evidence or countering their data.
    25 Apr 2014, 10:30 AM Reply Like
  • taxman100
    , contributor
    Comments (352) | Send Message
     
    So let me understand this, a country with a positive trade balance, a balanced budget, and huge foreign currency, as well as gold, reserves, is downgraded to nearly junk levels.

     

    Meanwhile, a country with 1 out of 6 on food stamps, chronic labor, trade, deficit, foreign currency, and gold imbalances and it is only going to get worse, is the benchmark for financial solvency?

     

    I'm just trying to be objective on this.
    25 Apr 2014, 09:55 AM Reply Like
  • Luben Stanev
    , contributor
    Comments (27) | Send Message
     
    Because the capital outflow is over 30 billions per month!
    Because they import 70% of the consumer goods.
    Because the depend only on oil&gas and they quarrel with their major consumers.
    Because they have to spend another Billions for Crimea, after Chechnya, Abkhazia, South Ossetia, Belarus,....
    25 Apr 2014, 10:13 AM Reply Like
  • salvatort
    , contributor
    Comments (360) | Send Message
     
    Once restrictions are placed on their energy exports, there will be no trade balance and a huge budget deficit. Their economy is very vulnerable.
    25 Apr 2014, 10:25 AM Reply Like
  • taxman100
    , contributor
    Comments (352) | Send Message
     
    Valid points, but China and India are both signing deals to buy Russian energy and construct high capacity pipelines. That may take a few years, but the rise of Asia and their interest in reducing U.S. influence will offer the possibility of Russia selling energy, not in U.S. dollars, but in Rubles backed by gold.

     

    Objectively, I'm not trying to say Russia is underated, but the United States is vastly overrated from a financial standpoint. What percentage of U.S. consumer goods are now imported?
    25 Apr 2014, 12:23 PM Reply Like
  • Stolen Google Bike
    , contributor
    Comments (5) | Send Message
     
    17% of US goods and services (as a percentage of GDP) were imported in 2012, compared to 22% for Russian federation. Brazil is the only country on their list that imported a smaller GDP percentage than the US (14%).

     

    Data from Worldbank.org.
    25 Apr 2014, 09:52 PM Reply Like
  • Andrey Udovitskiy
    , contributor
    Comments (21) | Send Message
     
    You both have sense and reason in your comments. Additionally CBRF has raised the rate from 7% to 7.5%, meaning to tackle inflation as a primary target. So borrowing will get tough both on external markets and internally.
    25 Apr 2014, 10:15 AM Reply Like
  • Sakelaris
    , contributor
    Comments (1854) | Send Message
     
    The sum total of the above comments is that high tensions and the related sanctions game, if continued for several months, will be bad for the US AND bad for Russia.

     

    Sadly, however, we see the US continuing efforts to undertake some mischief in Russia's own backyard that even our toughest Cold War presidents would have considered unthinkable.
    25 Apr 2014, 10:34 AM Reply Like
  • Land of Milk and Honey
    , contributor
    Comments (5787) | Send Message
     
    Sak

     

    This isn't the US vs. Russia. You've left out the whole continent of Europe. The countries right there in proximity to Russia...
    25 Apr 2014, 10:37 AM Reply Like
  • Sakelaris
    , contributor
    Comments (1854) | Send Message
     
    So will these Europeans gain from a continuation of tensions? I doubt it.

     

    And I hope they are not expecting a Marshall Plan-style bailout when things finally cool down.
    25 Apr 2014, 10:51 AM Reply Like
  • Land of Milk and Honey
    , contributor
    Comments (5787) | Send Message
     
    Sak

     

    No one said anything about gaining from tensions, nor is it relevant to my comment to you about your comment.

     

    My point is that you are singling out the US as though -all- the other countries nearby aren't part and party to all of this, and motivating anything.
    25 Apr 2014, 11:06 AM Reply Like
  • Robert Duval
    , contributor
    Comments (6549) | Send Message
     
    http://seekingalpha.co...

     

    My perspective. You buy crisis, don't sell.
    26 Apr 2014, 04:25 PM Reply Like
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