JPMorgan Downgrades Russian Stocks to ‘Neutral’ as Ukraine Tensions Ratchet Up

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J.P. Morgan analysts on Tuesday downgraded Russian equities from “overweight” to “neutral,” citing a sharp spike in uncertainty in the wake of Kremlin moves to recognize the independence of two breakaway statelets in eastern Ukraine, feeding into fears of a large-scale invasion.

“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,” JP Morgan analyst Elena Jouronova said in a note, per Reuters.

Russia has amassed a vast number of troops along its border with Ukraine and Russian-backed separatist forces have ramped up their attacks along the so-called line of contact in eastern Ukraine, fueling fears it would give Russia a pretext for an invasion.

Russia’s President Vladimir Putin on Monday declared the separatist-controlled so-called Luhansk People’s Republic (LPR) and Donetsk People’s Republic (DPR) as “independent” states, while issuing a decree ordering Russian troops into the two regions, ostensibly to “maintain peace.”

Epoch Times Photo
Russian President Vladimir Putin addresses the nation in the Kremlin in Moscow, Russia, on Feb. 21, 2022. (Alexei Nikolsky, Sputnik, Kremlin Pool Photo via AP)

U.S. Ambassador to the UN Linda Thomas-Greenfield told an emergency meeting of the UN Security Council on Monday that Putin’s recognition of so-called LPR and DPR was a bid to create a pretext for an invasion while dismissing as “nonsense” his claims that Russian troops entering the regions were peacekeepers.

While parts of the two provinces are controlled by Russia-backed separatists, both belong to Ukraine under international law, with Putin’s moves drawing broad international condemnation and triggering a series of first-round sanctions that are likely to be scaled up if Russia launches a broader invasion of Ukraine.

A key question for markets is how far the United States and its allies will go in sanctioning Russia for recognizing so-called LPR and DPR as independent, with EU leaders working on a package of sanctions and President Joe Biden already signing a decree prohibiting new U.S. investment in the regions, imposing import-export bans, and other measures.

EU leaders met in Brussels on Tuesday and unanimously agreed on the principle of sanctioning Russia and are set to meet in Paris later to discuss details, though finalizing a package could take days.

“The U.S. and European Union could impose medium-type sanctions like restrictions on OFZ trading on the secondary market and non-commercial banks,” Iskander Lutsko, chief investment strategist at ITI Capital in Moscow, told Bloomberg. “This is priced in and investors have a good opportunity to buy now—but for the short term as the risk of escalations is high.”

While Russia has repeatedly claimed it has not intention to invade Ukraine, Western leaders have dismissed those declarations as non-credible, believing Putin’s forces are preparing to press deeper into Ukraine, possibly on the back of a false flag provocation.

“It appears as if Russia is engineering a pretext to invade Ukraine by conducting a false flag attack—blaming Kyiv for actions Moscow in fact instigated—and alleging that the government of Ukraine poses a threat to Russian speakers in the country’s east,” Michael Kofman, Research Program Director of the Russia Studies Program at the Center for Naval Analyses, wrote in a recent analysis in Foreign Affairs.

Epoch Times Photo
Members of the Joint Centre for Control and Coordination on ceasefire of the demarcation line, or JCCC, take forensic photos of damage to a house from an artillery shell that landed in Vrubivka, in the Luhansk region, eastern Ukraine, on Feb. 17, 2022. (AP Photo/Vadim Ghirda

Still, despite evidence for what appears to be Russia-staged provocations, including a series of explosions and an alleged strike against a water treatment facility in the separatist-controlled regions, Kofman believes Putin “could still get cold feet” and opt against a large-scale invasion.

Russian stocks and its currency took a beating after Putin’s declaration regarding the two so-called independent republics in eastern Ukraine, though equities later pared back some of the losses and the ruble flipped to gains as investors bet on the extent of the Russian sanctions.

Tom Ozimek


Tom Ozimek has a broad background in journalism, deposit insurance, marketing and communications, and adult education. The best writing advice he’s ever heard is from Roy Peter Clark: ‘Hit your target’ and ‘leave the best for last.’

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