This morning, S&P downgraded Russia’s credit rating to one notch above junk.
S&P’s #1 reason for the downgrade? Money is fleeing Russia fast.
This is what S&P says right at the top of the downgrade announcement:
In our view, the large capital outflows from Russia in the first quarter of 2014 heighten the risk of a marked deterioration in external financing, either through a significant shift in foreign direct investments or portfolio equity investments. We see this as a risk to Russia’s economic growth prospects.
This chart from Morgan Stanley published earlier in the week shows the problem.
Basically just look at the big light blue bar at the right end. That’s investor money fleeing the scene. With political instability a weakening economy and rising sanctions, it seems safe to say that investor money won’t be rushing in any time soon. And that’s a problem. For more on S&P’s announcement, see here.