(Reuters) – J.P.Morgan analysts downgraded Russian equities to “neutral” from “overweight” on Tuesday, after Russian President Vladimir Putin formally recognised two breakaway regions in eastern Ukraine, escalating a security crisis on the continent.
The Ukrainian military said two soldiers were killed and 12 wounded in shelling by pro-Russian separatists in the east in the past 24 hours, the most casualties this year, as ceasefire violations increased.
Putin’s announcement on Monday drew international condemnation and the United States and its European allies are poised to announce harsh new sanctions against Russia.
JPM analysts expect further declines in the Russian stock market in the near term.
Russia’s dollar-denominated RTS share index slumped 8% by 0724 GMT, while the rouble-based MOEX index fell 6%.
“With uncertainty as high/valuations as low as we can remember and a declining investor appetite to accept Russian risk – either long or short – we move to N on Russian within our CEEMEA allocation,” analyst Elena Jouronova said in a note.
A fall in dividends poses further downside risk. Russia may not pay out to foreign shareholders when U.S. policy is explicitly designed to isolate Russia from markets, JPM adds.
(Reporting by Tanvi Mehta in Bengaluru; Editing by Sherry Jacob-Phillips)
