The Russian currency and market may face a hard time - September 04, 2017

The Russian currency and market may face a hard time

Russia is losing foreign investors as US funds are betting against the rouble, selling their currency faster than ever before. This may lead Russia to a rather hard situation. Investors will probably stay out of the country in the near future.

Foreign investors do not trust the Russian market, even if the country’s recession is coming to an end and oil prices are mostly stable. At least that’s what the US Commodity Future Trading Commission’s data shows: US funds are increasing their short positions.

Bets against the rouble

Just last week, short options rose 30% on the CHX derivative market. This led to 11,646 contracts against the rouble, totalling up to 29.1 billion roubles, which is the highest ever since the American stock market history, according to finanz.ru.

Buying options were a lot lower: only 4,842 contracts adding up to 12.1 billion roubles. All this means that short positions outnumbered long ones by almost 7 thousand which is, again, the highest number ever since there is official data.

Bad season, huge deficits

As per the finanz.ru article, the chief economist for Russia, and CIS at ING this is historically a bad season for the rouble. Every year at late summer, demand for foreign currency increases while the inflow falls, they write.

This with the general distrust lead to a huge deficit: the Central Bank estimates that the account deficit in the last months was $5 billion. According to Sberbank’s analysts, the foreign currency liquidity of Russian banks was barely over $3 billion in August.

Withdrawal from the stock market

The stock market has problems as well. As finanz.ru writes, “capital withdrawal from the Russian stock market goes on almost continuously since February”. Some data suggests that the total stocks sold by non-residents add up to $1.7 billion, which is the highest outflow since 2013.

The article mentions that in the last 1.5 years billions went into Russia’s speculative market but lately more and more people distrust the rouble. Fed is also expected to cut back its liquidity and probably developing countries will suffer first. One analyst believes that the situation is not expected to change “in the foreseeable future” and the new sanctions against Russia won’t help either.

We believe that there is a chance for a further 5-10% fall in the price of rouble, especially if the USD strengthens, but a more serious weakening is not expected in the near future. The prices may stay there for a longer period, though.

Disclaimer: This analysis is for general information and is not a recommendation to sell or buy any instrument. Since every investment holds some risk, our main business policy is based on diversification to minimize threats and maximize profits. Innovative Securities’ Profit Max has a diversified portfolio, which contains liquid instruments. This way, our clients can maintain liquidity, while achieving their personal investment goals on the long term.