What Russia’s Currency Collapse Means to Singapore

If you have been following financial news over the past week, you would have a rough idea that Russia’s economy is currently in deep trouble. Faced with Western economic sanctions over its misadventures in the Crimea region in Ukraine, and stung by plummeting oil prices, Russia has seen its currency – the rouble – lose almost half its value against the US dollar since June this year.

With Russia’s revenue heavily dependent on energy prices, the Russian central bank expects the country’s gross domestic product (GDP) to contract by 4.5% next year if the price of crude oil continues to hover around US$60 a barrel as it’s doing now.

All the above has likely played into the negative opinion of investors regarding Russian stocks. For instance, the Lyxor ETF Russia (SGX: JC7), an exchange-traded fund listed in Singapore’s stock market which tracks the Dow Jones RusIndex Titan 10 (an index representing “the largest and most liquid Russian Depository Receipts (DRs) that trade on the London Stock Exchange”), has plunged by some 44% since the start of the year.

Meanwhile, the rouble’s collapse would also have a direct impact on the earnings of Singapore companies doing business in Russia with Food Empire Holdings Limited (SGX: F03) being a poster boy.

The company is a market leader in the 3-in-1 instant coffee segment in Russia and the country actually contributes around half to the firm’s total revenue. Although the demand for the company’s food products may continue to stay resilient in Russia, the currency de-valuation will lead to severe foreign exchange losses as the firm’s earnings are reported in US dollars.

As it is, the substantial depreciation of the rouble against the US dollar has already weighed heavily on Food Empire’s financial results with the company suffering a net loss of US$1.4 million for the first nine months of 2014. The company’s losses may well be aggravated going forward as the firm’s latest set of financials has not even taken the rouble’s recent further collapse into account.

Foolish Takeaway

In my opinion, the collapse of the rouble should not have any significant direct impact on Singapore’s economy. That’s because local companies have relatively limited business exposure to Russia (for instance, Russia was just Singapore’s 25th largest trading partner in 2012). Although, investors in shares of individual companies with significant business interests in Russia might want to keep a closer watch on how the whole rouble situation plays out.

If Russia does fall into a deep recession, spill-over effects in the rest of Europe might also be something for investors to consider. But with all that being said, Singapore should still be safe so long as a full-blown financial crisis does not develop.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo does not own any companies mentioned.