The war between Russia and Ukraine is already causing notable suffering and anxiety – both in the countries which are immediately affected, and in the rest of Europe and throughout the world. Get informed about how the conflict will impact the financial world in this moneyland.ch report.
Stock markets are collapsing
The Russian stock market has experienced catastrophic losses. The MOEX Russia Index, which reached a new record high in October of last year, tanked by one-third on the first day of the conflict. According to Bloomberg, that is one of the biggest intra-day drops in a stock index in history. The Moscow Exchange paused trading for around two hours after the initial crash occurred. The Ukrainian stock exchange has been completely closed since February 24, as a reaction to the attack.
Stock markets outside of Russia and Ukraine have also been affected, albeit not to the same degree. The MSCI World Index fell by nearly 2.7 percent. The Swiss Performance Index (SPI) fell by 2.4 percent. But it is important to note that the global stock market had already weakened before the Russian attack. Both the MSCI World Index and the SPI slid by around 10 percent since the start of 2022.
Swiss banks have been some of the biggest losers among Swiss stocks. UBS lost 8 percent of its value in one day, while Credit Suisse lost around 5 percent. Worries about important Russian banks being cut off from the SWIFT payment network have existed since the day of the initial attack – and the decision to follow through on this action was made two days after.
The ruble falls
The value of the Russian ruble already declined sharply on the first day of the invasion. The European Union (EU) agreed on further sanctions the following weekend. Among other sanctions, the Central Bank of Russian Federation can no longer trade its currency on western financial markets. As a consequence, the Russian ruble lost around 30 percent of its value against the US dollar on Monday, after which trading on the Russian stock exchange was again temporarily suspended.
The developments also led to widespread withdrawal of money from Russian banks. According to the European Central Bank (ECB), Sberbank Europe – the European subsidiary of Russia’s Sberbank – is already struggling with liquidity issues.
Wild volatility in cryptocurrency prices
Cryptocurrencies often lose value when stock markets tumble. Shortly after the Russian attack, many cryptocurrencies – including bitcoin – devaluated by nearly 10 percent. However, they had largely recovered by the next day.
But the developments have shown that currently, cryptocurrencies do not provide stability in the face of crises. Rather, crisis situations have so far created even greater volatility in cryptocurrency markets. Bitcoin in particular has been seen by some investors as a form of safe haven, and even heralded as an alternative to gold – which unlike cryptocurrencies, drastically gained value immediately after the attack. Over the past days, the price of bitcoin has developed almost exactly the opposite to that of gold.
Energy costs climb
Energy costs were already shooting upwards before the Russian attack. The price of crude oil climbed by more than 20 percent in less than two months. But the climb on the day of the invasion was not too extreme, at 0.7 percent. Markets appear to be stabilizing.
As far as energy prices are concerned, the conflict was already noticeable before it escalated into a full attack. The price of gasoline in Switzerland is nearly 18 percent higher than it was last month, according to data from Shell. Diesel prices are more than 15 percent higher.
But in spite of a possible stabilization of prices, Europe’s energy worries are not over. Many market observers and dealers have concerns about further complications because a large part of Europe’s fossil fuel supply comes from Russia. Additionally, part of the gasoline supply is transported through Ukrainian pipelines. The current war could result in this supply being shut down or at least becoming less reliable. A decision by Russia to stop supplying energy to Europe for a longer period of time would likely result in an energy crisis.
Restrictions on financial services
A number of European financial services providers have warned their customers that they may face limitations due to the conflict – for the buying and selling of Russian stocks, for example. On Monday, Russia’s central bank announced a temporary ban on the sale of Russian stocks for investors outside of Russia.
The National Bank of Ukraine imposed a slew of immediate measures limiting financial services in the country as a reaction to the attack. According to the bank, depositors can only withdraw a maximum of just 100,000 Ukrainian Griwna (currently worth around 3000 francs) per day from their accounts at this time. Spending in foreign currencies and spending money electronically (using PayPal, for example) is forbidden. Ukraine’s national bank says that these measures are temporary. There is no clear timeframe for when these restrictions will be lifted.
Frozen bank accounts
The EU has decided to freeze the Russian money held by European banks as a reprisal for the attack on Ukraine. Switzerland followed suit several days later, blocking money from customers which are on the EU’s list of sanctioned entities. This list includes Russian banks, members of the Russian parliament, and Russian military servicepeople. Opening new business relationships with these entities is also forbidden.
Grains and aluminum are more expensive than ever
Both Russia and Ukraine are major exporters of grains, and particularly of corn and wheat. Steel and other metals-based products are also exported in large quantities. European prices for aluminum and wheat shot up on the day of the attack. Both of these commodities traded at record prices.
This mimics the price increases of around 20 percent which resulted from Russia’s annexation of the Crimea. It is likely that the current conflict will have a much bigger impact, because it affects a much larger portion of Ukraine. There is also no sure way to predict how long it will take for prices to return to pre-war levels.
Companies cease factory operations
The war has led many companies, such as Nestlé and Coca Cola HBC, to announce the temporary closure of factories in Ukraine. Many of these companies employ thousands of workers. If these companies cannot make up for the production deficit elsewhere, consumers may see further shortages and price increases.
Many international trade routes are now hugely restricted, which may result in additional supply chain problems.
Free phone calls
Swiss telecom companies have also responded to the war and announced that they are now offering free phone calls from Switzerland to Ukraine and vice versa for private customers. While Salt and Sunrise are only waiving fees for international phone calls, Swisscom says that it is also dropping charges for mobile roaming in Ukraine. Salt and Swisscom have said that this waiver initially applies until mid-March. Sunrise UPC has not named a specific timeframe.
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This article was first published on February 25, 2022.
