Strategy Note /

Russia in ruins in 8 charts

  • FX reserve buffer doubled since 2016 and now much of it is inaccessible, undermining any Russia threat to cut EU gas

  • Ruble is already down 25% and the parallel rate discount could imply another similar leg down

  • Putin's domestic popularity was on the up pre-Ukraine invasion; what if this turns into his Afghanistan?

Russia in ruins in 8 charts
Hasnain Malik
Hasnain Malik

Strategy & Head of Equity Research

Tellimer Research
28 February 2022
Published byTellimer Research

Ruble ruined

The official Ruble rate is already down 25%. The forward PE multiple of London-listed Russian stocks is 50% lower than the equivalent valuation of stocks listed in Moscow, where foreign selling is restricted. That implies the parallel FX rate could have at least another leg down of similar magnitude.

Russian Ruble has lost a quarter of its value year to date

Russia equity valuation has collapsed and ban on foreign selling on the local exchange simply delays the exit

Reserves buffer busted

Russia's foreign reserves buffer doubled since 2016 and gave Russia the option for a more aggressive foreign policy. Its over-reach in Ukraine has led to sanctions on its central bank and now much of that buffer is inaccessible, undermining the credibility any Russian threat to cut gas flows to the EU. It needs the hard currency from that trade.

Foreign reserves build-up made sense but sanctions after the over-reach in Ukraine has undermined this buffer

Sanctions on Russia's central bank prohibit access to its liquid foreign reserves, rendering the Ruble indefensible

Russia policy rate hike is not going to be nearly enough

Regime reverberations

Autarky, resulting from sanctions, has pummelled the economies of Iran, North Korea, Syria, and Venezuela but none of those regimes have been fighting a conventional, violent, interstate war in a country the size of Ukraine.

If there is no de-escalation soon then Russia is headed towards economic isolation. However, sanctions may, for a while, strengthen the position of President Putin and the vested, elite interests that support him (revolutionary popular uprisings have not succeeded in any of the countries mentioned above in their sanctioned era), but should Ukraine turn into his version of 1980s Afghanistan then the authoritarian grip on power becomes ever harder to maintain.

The irony is that President Putin's domestic popularity was on the increase over the last few months and, of course, his term limits last until 2036. How his regime navigates this crisis of its own making remains to be seen.

Russia's conventional military is much bigger than those in its "buffer region" but dwarfed the more global the conflict

Putin's popularity was on the rise prior to Ukraine invasion