Fears of the end of summer are related to geopolitics and financial market risks
August is considered a «dangerous» month by the people. Since the early 1990s, it was at the end of summer that the most difficult events for our country occurred — the putsch, the sinking of the Kursk submarine, the collapse of the MMM financial pyramid, the beginning of the second Chechen war, default and other high-profile tragedies. Any Russian over 30 remembers at least some of these events, and even suffered from these cataclysms. Will the «August curse» work this year, «MK» found out from the head of the analytical department of BKF bank Maxim Osadchy.
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— Indeed, August has earned a bad reputation, first of all, thanks to two infamous events: the August putsch of 1991 and the sovereign default of 1998. In addition to them, this month also saw the collapse of the MMM pyramid (1994), the beginning of the second Chechen war (1999), the terrorist attacks on Manezhnaya (1999) and near Pushkinskaya Square (2000), the sinking of the Kursk nuclear submarine (2000), the military conflict with Georgia (2008), smog in Moscow due to burning peat bogs (2010)… It is too early to panic, but it is worth being careful in August. However, I will paraphrase the famous aphorism of Mark Twain: «August is one of the especially dangerous months. The rest are July, January, September, October, April, November, May, March, June, December, and February.»
— I would highlight four main threats. Firstly, the biggest risk for the third year in a row is geopolitical. Let's recall the crisis in February-March 2022. Or the destabilization of the Russian exchange currency market as a reaction to partial mobilization in September 2022. A sharp intensification of the conflict, for example, the involvement of new participants in it, can cause similar consequences in the financial market: panic in the market, a run on banks by the population, a collapse of the ruble…
Secondly, Russia remains critically dependent on hydrocarbon exports. A sharp decline in export revenues will be a powerful shock to our economy, as has happened many times before. Let me remind you that the collapse of oil prices in the 1980s was one of the reasons for the collapse of the USSR. The threat is posed not only by a sharp decline in oil prices, but also by increased sanctions, the hunt for tankers transporting Russian oil, attacks on the port of Novorossiysk…
Thirdly, the «yuan trap» may slam shut. Chinese banks are increasingly refusing to accept payments from Russian banks. The Indian «nipple scheme» is being repeated: yuan, mainly for raw material supplies to China, enters Russia, and leaves Russia in much smaller amounts. The yuan bubble is inflating: the National Welfare Fund alone has accumulated 230 billion yuan worth $32 billion, and there are no other foreign currencies there. The risks of the Russian currency market are growing immeasurably due to such, if you will, «diversification».
Fourth, a relatively rapid increase in the key rate may contribute to the fact that many borrowers — both legal entities and individuals — will not be able to cope with the increased debt burden and will default. Accordingly, a debt crisis may arise. If a very large borrower defaults and a domino effect is realized, the consequences for the market may be catastrophic. However, this risk is weakened by the nationalization of the economy.
In addition to these four threats that may be realized in August, there are two more potential dangers. Let me remind you that on July 1, the preferential mortgage program at 8% ended and the conditions for family mortgages worsened. Accordingly, the demand for housing may sharply decline, which, in turn, may launch a standard crisis scheme in the real estate market.
We should not forget about the ongoing boom in the unsecured consumer credit market. The population's debt burden is growing, which is especially dangerous given that the target audience of this market is people with relatively low incomes.
But these two factors are like time bombs; they will definitely not explode in these areas anytime soon.
— That's definitely not something to be afraid of. August 1998 will definitely not be repeated. After all, the Russian debt is predominantly denominated in rubles, and the state will be able to pay it off «by any means», even with the help of a printing press. Why didn't they do the same in 1998 — that's the question.
— If at least one of the four threats mentioned above is realized, then yes, and «black swans» often fly in flocks.
However, the experience of September 2022 and June 2024, when sanctions were imposed against the Moscow Exchange and its infrastructure, shows that the opposite reaction to shocks is also possible — a sharp strengthening of the ruble. For example, if the «yuan trap» slams shut, then non-cash yuan in Russian banks will turn to dust. But there is nothing good in this scenario either.
Moreover, the longer the geopolitical conflict develops, the less stable and protected the Russian economy becomes in relation to external and internal shocks.
— Avoid risky investments in stocks and cryptocurrencies. Ruble deposits in Russian banks, the most reliable bonds of Russian issuers and cash hard currencies are our everything!