What happened
As Ukraine declared a state of emergency in response to Russia's deployment of troops, Russian stocks declined for a second straight day on Wednesday.
As of 1 p.m. ET, shares of:
- Russian tech giant Yandex (NBIS) are down 9.2%.
- Telecom titan Mobile TeleSystems (MBT) are down 9.5%.
- E-commerce company Ozon (OZON) -- the so-called Russian Amazon.com -- are down 9.6%.
So what
It's no great mystery why. Following a rambling, near-hour-long televised address by Russian President Putin on Monday, on Tuesday Russian troops and tanks began moving into the self-styled "Donetsk People's Republic" and "Lugansk People's Republic" -- the two Ukrainian "statelets" that Russian proxy forces carved out of Ukraine in 2014 following their invasion of Crimea.
International condemnation of Russia's action was swift, beginning with denunciations in the U.N. Security Council and evolving into economic sanctions levied by the United States, the United Kingdom, the European Union, Australia, and Japan. So far, at least two Russian banks have been sanctioned, several oligarchs and government officials have been subjected to travel bans, the trading of new Russian sovereign debt has been banned, and the company constructing the $11 billion Nord Stream 2 pipeline -- which Russia helped build in order to bypass Ukraine when exporting natural gas to Europe -- has been sanctioned.
Now what
Russia seems undeterred and that could lead to further actions that put pressure on Russian companies. Granted, with business operations ranging from internet search to mobile phone service to online shopping, you might not expect Yandex, Mobile TeleSystems, and Ozon to be in the crosshairs for economic sanctions. But as Russian stocks traded on U.S. stock exchanges, all three are especially vulnerable to the kinds of future sanction measures being weighed, such as delisting. Yandex and Ozon, which have chosen to incorporate their headquarters outside of Russia, could be especially vulnerable to bans on money transfers to and from Russia, and Mobile TeleSystems, with the heavy debt load common among telecoms, would be hit particularly hard by rising interest rates.
Speaking of which, The Wall Street Journal reports that the cost of borrowing in Russia is already going up in response to these sanctions, and the Russian stock market is going down. Given that this is the reaction to the relatively mild sanctions imposed so far, things could get much worse. No matter how cheap Russian stocks might appear after this sell-off, the risks seem to outweigh the benefits right now.