Default Image

How will Russia's downgrade to 'junk' affect you?

Just when it looked like things couldn't get much worse for Russia's finances, credit rating agency Standard & Poor’s downgraded its rating to ‘junk’ for the first time in ten years. This is likely to make it harder for the government and banks to borrow, and will have complex implications for you if were planning to invest in the country. We take a look at how this happened and unravel the consequences.

The downgrade was triggered by Russia's weakened economy, caused by the falling price of oil combined with Western sanctions after the crisis in Ukraine. Standard & Poor’s has also blamed a lack of flexibility in the country’s financial policies. Other commentators have been more blunt, blaming mismanagement of the economy.

The new rating could begin a domino effect for Russia’s financial systems. It’s expected that other credit agencies will follow Standard and Poor’s' assessment over the coming months, narrowing the marketplace for investors. This will bump up the cost of borrowing, as some mainstream investors and pension funds aren’t allowed to buy junk bonds (risky, but potentially high-yield investments).

The prospect of high returns might make this seem like a good time to invest. However, many experienced investors lost in 2014 by assuming that Russia had hit its lowest point. It hadn’t; the rouble plunging from just over 0.03 US dollars per rouble to half that by December 2014. Around half of the country’s export income is from oil, so Russian assets are likely to be a better investment once oil prices bottom out. For now, they’re still falling.

The question for investors is when they can expect that decline to end. Standard & Poor’s has said that Russia’s credit rating could be reinstated over the next year. However, that's only if the outlook on financial stability and economic growth improves. If conditions stay the same, the firm only expects the economy to expand by just 0.5% in the next three years. 

Some commentators are predicting a full recession, meaning that if you're considering investing in Russia, it's best to wait for further declines in the rouble and Russian stock exchange. With a ₽1tn bank bailout on the horizon, it could be a long time before the Russian market is once again a solid investment opportunity.

Comparison tool

Nicola O'shea

Was going to use our local Post Office until I realised by using your comparison chart how they're loading the exchange rate. You've given me an extra $50 AUD by using Xendpay

Alex Larsen

I've been struggling to find a way to make regular transfers to my Norwegian account from the UK (where I work). Finally I've at least got some pointers for where to start, so I won't have to pay a fortune every time I transfer!
Paying for overseas holidays

PAYING FOR YOUR OVERSEAS HOLIDAYS IN LOCAL CURRENCY

When paying for your dream holiday in the local currency of your destination country, you want to make the most of superior exchange rates and low fees offered by the foreign exchange brokers listed on our site. This will ensure that you save money and your funds are protected.

Paying overseas suppliers in their own foreign currency

PAYING OVERSEAS SUPPLIERS FOR GOODS AND SERVICES

When paying overseas suppliers on a regular basis, currency conversion costs as well as fees when using your bank all add up. The Money Cloud saves you money by introducing you to specialist foreign exchange companies when conducting overseas business purchases and expenses.

Market Insights

Sign up for our newsletter.

Thank You for subscribing to our Newsletter

You have successfully signed up to our Newsletter