(Bloomberg) — The ruble dropped by the most since the dark days of the March 2020 pandemic, and Russian assets slumped across the board after the U.S. warned Moscow could invade Ukraine as early as next week.
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The currency dropped 2.9% Friday to 77.2 per U.S. dollar, marking its worst day in nearly two years. The largest U.S. exchange-traded fund tracking country’s equities, the VanEck Russia ETF (RSX), fell by the most in three weeks.
Credit risk gauges for Russian and Ukrainian debt also jumped, though they fell short of levels seen less than a month ago.
“It’s so binary and basically impossible to predict,” said Win Thin, global head of currency strategy at Brown Brothers Harriman & Co. in New York. “If Russia invades, RUB weakens. If Putin stands down, RUB strengthens.”
READ: U.S. Warns of Risk That Russia Attacks Ukraine Next Week
Risk assets broadly added to losses as both the U.K. and U.S. advised citizens to leave Ukraine as tensions. For months, the White House has been warning that Russia may be preparing to invade Ukraine and threatened economic sanctions if the country attacks. Moscow previously denied plans to invade.
Benchmark credit default swaps on Russian and Ukrainian debt have risen, but they have ways to go before hitting the peaks of Jan. 24, when the situation last flared up.
For Malcolm Dorson, a money manager at Mirae Asset Global Investments in New York, the developments are “incrementally negative, which elevates market risk premiums and is driving today’s sell-off.”
Still, his base case scenario remains geared toward deescalation, which from an investment perspective, “signals a market opportunity,” he said.
While Russia’s local stock market closed before the U.S. press conference on Friday, it has tumbled about 6% so far this year in local-currency terms, according to data compiled by Bloomberg.
(Updates pricing throughout)
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