Russian stocks fell over 3% on the RTS Index in Moscow Monday after a no-surprise victory for Petro Poroshenko, the chocolate magnate that won the presidency in Ukraine. Investors have happily cashed in their chips on the Poroshenko win. The market will now likely wait and see how a post-sanctions Russia turns out in the daily news flow.
Russia's former Soviet ally has been a thorn in its side for years, but most notably since the fourth quarter. For investors, the past four weeks have been best kept secret in the BRIC markets. With Poroshenko poised to win in the first round against some 21 candidates, investors bought into Russian equities. The Market Vectors Russia (RSX) exchange traded fund rose more than 10% in the four weeks ending Friday, clobbering the MSCI Emerging Markets index. But on Monday, the ETF is already down more than 2%, while the
Poroshenko is seen as a political pragmatist. He served in cabinets of both pro-Russia and anti-Russia presidents, including the recently ousted Viktor Yanukovych. The billionaire also has his hand in Russian business as well, with at least one chocolate factory in the country.
--It's been a nice four weeks. But on Monday, the Market Vectors Russia exchange traded fund followed the RTS Index in Moscow with investors cashing their chips after Ukraine's relatively benign election.He has also indicated that while he intends to move the country closer to the E.U. economically, he will not sign any defense deals with Brussels. The last thing Russia wanted was for Ukraine to join NATO, like many former Soviet states close to Europe have done since the end of the Cold War.
On Monday, Russian foreign minister Sergei Lavrov said Moscow is fine with Poroshenko and does not need any Western intermediaries to start building healthy dialogue between the two countries. Russia and Ukraine have been in a mini-war, with Russia annexing parts of the country in March. The Crimean peninsula, with its majority ethnic Russian population, voted to secede from Ukraine on March 16 when the new interim government axed the Russian language from its official communications policy immediately upon taking office.
“Direct ties between Moscow and Kiev exist, they have never stopped," Lavrov said. "We will be ready...to establish a pragmatic and equal dialogue,” Lavrov said, paying special note to an ongoing gas dispute between Russia and Ukraine. Russia is Ukraine's leading foreign supplier of natural gas. The country owes Gazprom over $1.5 billion. Gazprom shares fell nearly 3% in Moscow today.
Nabi Abdullaev, RIA Novosti’s Foreign-Language News Chief, wrote in an op-ed Sunday that Russia's best bet now is to "sit on the fence" and wait.
"If, after a time, things go well for Ukraine, Moscow would be able to deal with a functioning, established government capable of reciprocity," Abdullaev wrote. "If the new government fails, Ukraine will see a wave of popular resentment for the idea of integration with the E.U., especially in the eastern regions and the Crimea. This would mobilize and empower proponents of closer ties with Moscow, who could then open its arms wide to embrace anyone disenchanted with the Europeans."
Investors are likely selling on the news.
Russian equities have been performing surprisingly well, despite Western sanctions. Providing the sanctions talk wears off, and Lavrov is correct that Moscow is -- albeit not very enthusiastically -- waving a white flag, a more positive sentiment may return to Russia in the second half of the year.
