So far, the 28 members of the European Union and the United States have not imposed damaging sanctions on Russia. But the escalation of the Ukrainian conflict and the fear of more foreign adventures orchestrated by Czar (I mean, President) Putin have generated an outflow of foreign investments and frightened Russia's super-rich industrial oligarchs into a "wall of worry". Over the last few days, for example, American exchange-traded funds (mutual funds) have pulled out 40 million U.S. dollars from the stock market. Not much money in real terms, but it could signal an avalanche to follow. Russian shares are the worst performing emerging market stocks in the world - down 12% in 2014, while the index average for all other emerging markets is up 6% for the year. this is a spread of 18%.
A poll of foreign investors by Bloomberg News earlier this year found that Russia is considered the worst of all the world's biggest economies to invest in. 56% of the respondents said they would never invest in Russia. Analysts predict that this boycott will grow if Mr. Putin does not back down from his support of the separatists.
While sanctions have not yet targeted Russian banks, their stocks have fallen as foreign money streams out of the country. Will all of these market forces persuade Vladimir Putin to back off? His history says no. But how far can he let the economy crumble before even this dictator must submit. The last word goes to Gabriel Borenstein, managing director of a large brokerage in New York: "Unless Mr. Putin renounces this tragedy (Ukrainian intervention), massive sanctions will likely be imposed on Russia........ The Russian economy faces a potential major decompression".
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