ON APRIL 6th America imposed harsh new sanctions on Russia in response to its “malign activity” abroad. Rattled investors sent stocks tumbling when the Moscow exchange reopened on April 9th. The principal stockmarket index fell by 8.3% that day. The rouble sank sharply. Oleg Tinkov, a banker, lost $250m, but brushed it off with reference to a previous daily loss of $1bn. “Being on the Russian stockmarket is like living on a volcano,” he said.
Geopolitics drove markets through the week. Tensions over Syria (see article) and talk of potential sanctions on Russian government bonds weakened the rouble further. A fiery morning tweet from Donald Trump threatening Russia sent stocks tumbling again on April 11th. But when the treasury secretary came out against sanctions on bonds later that day, the rouble and the stockmarket perked up.
Among the 24 people targeted by the new sanctions are government officials and the son-in-law of Vladimir Putin, Russia’s president. Also on the list are 14 companies—including, in a first for American sanctions against Russia, listed ones such as those controlled by Oleg Deripaska, one of Russia’s richest men and the boss of United Company Rusal, the world’s second-largest aluminium firm. Investors have until May 7th to rid themselves of stocks, bonds or holdings in several of them. All contracts and activities with sanctioned firms must be ended within 60 days.
Last summer Congress passed a law requiring the Treasury to identify individuals close to Mr Putin for potential sanctions. But when the list was published in January, it was so long as to be meaningless. “There was a consensus on the market that any actions on sanctions would just be for show,” says Natalia Orlova, the chief economist at Alfa-Bank.
The latest measures put paid to that idea. They make it “virtually impossible” for Mr Deripaska to deal in the dollar economy, says Daragh McDowell of Verisk Maplecroft, a consultancy. Rusal was forced to tell customers to halt transactions. Glencore, a giant commodity firm, put plans for a share swap with Rusal on hold. Its boss, Ivan Glasenberg, stepped down from Rusal’s board.
The sanctions have sown fear and uncertainty. The individuals affected are a mixed bunch, including figures such as Viktor Vekselberg and Suleiman Kerimov, who are barons of business but hardly Mr Putin’s closest cronies. Foreigners concluded that anyone could be next, and dumped anything Russian. This is about the fears of investors, rather than Russia’s economic fundamentals, says Jan Dehn of Ashmore Group, an investment firm. He foresees a buying opportunity.
Russia is more resilient than in 2014, when it went into recession after oil prices fell and Western countries imposed sanctions in retaliation for the annexation of Crimea and the war in Ukraine. Its companies and banks have reduced their foreign-currency debt and the rouble is free to float. The government has plenty of foreign reserves to cushion most external shocks.
Russia’s turmoil has had little effect on other emerging markets. Although it is the fourth-biggest emerging economy, its bonds and shares carry only a modest weight in the benchmark indices followed by foreign investors. By April 10th MSCI’s popular emerging-market equity index was higher than before the new sanctions were announced. That may not be good news for investors who remain exposed to Russia. If America concludes that it can put sanctions on Russian assets without hurting other countries, says Timothy Ash of BlueBay Asset Management, it may be more likely to do so again.