“The last major default on Russia’s external debt occurred after the Russian Revolution, when the Bolshevik government rejected Tsarist-era debt,” say Tommy Stubbington and Max Seddon in the FT. More than 100 years later, a default threatened again this week as investors waited for $117 million in interest payments on $2 bonds maturing Wednesday. “The deadline marked a crucial test of Moscow’s willingness and ability to continue servicing its external debt” after half of its $630 billion war chest of foreign exchange reserves was frozen. Earlier this month, President Vladimir Putin said creditors in “unfriendly” countries “should be paid in rubles, not foreign currency.” Fitch, the rating agency, said it would consider such a “forced switch” to indicate “that a default or default-like process has begun.”
Whatever this week’s outcome, it looks like the start of a “long battle over Russia’s debt,” DealBook said in The New York Times. The only question is how harmful a number of presets could be. There are good reasons to believe that “contagion should be limited,” said Julian Jessop in The audience. The total exposure of foreign banks to Russian companies was estimated at around $105 billion last year, but in the context of the global financial system, which is in much better shape than it was in 2008, that’s not huge. In addition, the size of the problem is well known (the United Kingdomfor example, Russia’s direct exposure to financial institutions is much lower than that of many EU members, notably France, Italy and Austria). And central banks still have some firepower left to limit collateral damage. “One lesson from past crises, however, is that ripples in what appears to be a small pond can cause a tsunami of losses.” We could see a domino effect as managers are forced to sell “good” assets alongside bad ones to reduce risk and to cover returns.
Tensions are running high in Chinese markets, where several indexes suffered their “biggest slump” since 2008 this week, he said Bloomberg. The “wide flight” followed reports that Russia had asked China for military aid. Despite denials from Beijing, there are fears his involvement “could trigger a global backlash against Chinese firms and even sanctions.” There is a growing consensus that Beijing will “yet” answer Moscow’s inquiries and may even broker peace talks, Ben Wright said The Daily Telegraph. let’s hope so “If China supports Russia financially, let alone militarily, we must arm ourselves.” Russia’s exclusion from world trade may or may not result in a global recession. “To do the same with China would undoubtedly lead to a global depression.
https://www.theweek.co.uk/business/city/956133/russia-china-long-battle-over-debt-tension-markets Russia and China: long debt dispute and tensions in the markets