What's up guys and welcome back to wall street millennial on this channel, we cover everything related to stocks and investing after russia's invasion of ukraine. Most economists predicted that the unprecedented economic sanctions imposed by the west would crush the country's already weak economy. The sanctions mainly targeted. Russia's financial system, within days of russian tanks rolling into ukraine, the european subsidiary of russia's spare bank was forced to shut down after a bank run.

Half of the russian central bank's foreign currency reserves. Totaling 300 billion dollars were frozen overnight, severely diminishing their ability to defend the value of the ruble over a thousand large western corporations shut down their russian subsidiaries, even if they were not required to do so by the sanctions with the ruble collapsing and trade ties with The west drying up many economists predicted a complete collapse with some estimating as much as a 25 percent contraction in their gdp. The er west, russia, etf tanked by 80, before being halted by the exchange as investors, grew increasingly pessimistic about the country's prospects. Western policymakers had hoped that the crippling economic costs and pose against the russian federation would hamper their defense industrial base and reduce their ability to wage a prolonged war.

That's why it came as a big surprise when the russian ruble more than doubled from its lows year to day, is the best performing currency in the entire world. Increasing twenty percent in value versus the us dollar and thirty percent versus the euro when including the currency gains. The russian stock market has also outperformed the us and european markets, while the country's gdp is still expected to contract estimates now have the economy shrinking by between eight and ten percent. While this will surely be a painful recession, it's not a complete collapse.

On the surface. This looks like putin's fortress, russia's strategy is paying off and he has been able to withstand the brunt of the sanctions, but the country is in a very fragile situation and there are reasons to believe that the strength of the ruble will only be temporary. This video is brought to you by masterworks with russia's invasion of ukraine and the fed hiking interest rates. Investors have understandably become concerned about their portfolios.

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On february 24th, foreign investors immediately dumped their holdings of russian assets in anticipation of western sanctions. This caused the value of the ruble to freefall, losing 45 percent of its value. In the first couple weeks, the federal reserve coordinated with allied central banks to freeze the russian central bank's foreign currency reserves greatly inhibiting their ability to support the value of the ruble. Many eu countries banned exports of luxury goods to russia, with tens of thousands of luxury vehicles stuck in transit frozen by european port authorities.

In fears of further export restrictions, russians started stocking up on imported goods, while they still could putting further pressure on the ruble. The decline in the ruble's value caused prices of imported goods to skyrocket inflation doubled from 9 to 18. In the first two months of the war. Aware of how desperate the situation was becoming putin quickly, convened with his economic advisers and the central bank governor to come up with a rescue plan, the most immediate priority was to stop the bleeding of the ruble's value and tame inflation.

Just four days after the war began, the russian central bank doubled their short-term policy interest rate from nine and a half percent to 20 percent, increasing interest rates made, holding the ruble more attractive, encouraging people to buy rubles and take advantage of the high interest rate. Secondly, they compelled export focused companies to convert 80 of foreign currency holdings to rubles, providing further buying pressure. Another big concern is that foreign investors would dump their russian stocks in bonds. Many institutional investors now consider russian financial assets, uninvestable msci and ftse.

Two of the largest stock index makers removed russia from their emerging markets and disease. When investors sell, they will convert rubles into their home currency, which would cause further depreciation to mitigate this. The russian government banned foreigners from selling their stockholdings on the moscow stock exchange. They also froze any distributions paid from russian businesses to foreign shareholders.

A law of the strength in the ruble can be attributed to the kremlin's capital controls which basically amounts to manipulation. But in addition to this, the fundamentals of the russian economy are actually pretty strong. Russia is one of the world's largest fossil fuel producers. Producing 14 of the world's oil supply and 17 of global natural gas.

Europe, in particular, is heavily dependent on russia, given their geographical proximity and pipeline infrastructure. Most large western oil companies have divested from their russian joint ventures and their ability to purchase oil field capital equipment has been reduced. Also, many western importers are shunning russia for pr reasons and fears around the uncertain sanction environment. Some of the decrease in european imports will be made up by greater exports to india and china, but it will take years to build out the necessary infrastructure to divert all the supply.

The research firm rice, dad energy predicts that russian oil production will decrease by about 15 percent in 2022. However, the decrease in volume will be more than offset by higher oil prices, which have almost doubled since pre-covered levels. In fact, a large part of the price increase has been the result of decreased russian supply. Oil demand is very inelastic.

Even when gas prices are high, you still have to fill up your tank to go to work. It would take a very large increase in price for most people to meaningfully reduce their consumption. Thus, even a small decrease in supply results in a large increase in price perversely. Russia's oil revenues may actually increase as a result of the sanctions they're exporting fewer barrels, but each barrel that they do export is for a much higher price.

The situation with natural gas is even more favorable to russia. Europe and asia are so dependent on russian natural gas that, even despite the sanctions, their production is still expected to grow, just a slower rate than would have been the case. Otherwise, with european natural gas prices more than five times higher than normal levels, russia is currently experiencing a windfall which will likely persist for at least a couple more years, based on current prices. Russia's energy exports are expected to increase by 36 percent to 321 billion dollars in 2022..

In fact, the european union has already sent close to 50 billion dollars to russia since the invasion began. This is more than the economic and military aid given to ukraine. In the same period, importing nations have to buy rubles to fund their energy purchases, which has sent the currency's value skyrocketing. The next problem they have to deal with is a 1000 foreign companies which have voluntarily halted operations in their country.

These companies employ hundreds of thousands of russians. Their closure would cause massive unemployment and reduce the availability of products to russian consumers. To mitigate this putin put into place laws whereby these foreign business subsidiaries will be expropriated by the government and souls of local entrepreneurs who are willing to operate them to get in front of any expropriations. Many western companies are selling their russian subsidiaries for pennies on the dollar.

Mcdonald's has operated in russia since 1990.. The grand opening of their first moscow location had great symbolic significance for russia's increasing economic ties to the west. Over the years, they expanded to 850 stores employing 60 000 people. Shortly after the war began, mcdonald's suspended its russian operations.

The real estate and supply chain infrastructure is still in place, they're just sitting idle. Just a few days ago, mcdonald's sold all of its russian operations to a russian billionaire named alexander gover, dover, already owned 25 mcdonald's franchise locations. He will continue operating the 850 mcdonald's across russia and the 60 000 employees will retain their jobs, while the exact terms of the deal were not disclosed. It's safe to assume that govern got a steal.

Mcdonald's says that it will take a 1.2 billion loss related to the transaction. There are many similar examples. The most popular automobile brand in russia is called leyda and is majority owned by the french auto giant renault, like mcdonald's renault, suspended its russian operations they're. Currently, in discussions with russian companies to divest their stake and the french company expects to recognize a loss of at least two billion, there will certainly be operational problems once they try to get the factory back up and running, as it will be more difficult to import.

Foreign-Made parts, but the factories previously owned by renault, will start producing cars again. At some point, western companies are on track to lose hundreds of billions of dollars by fire selling their russian assets to local entrepreneurs. While this will cost some operational inefficiencies, it is effectively a massive transfer of wealth from western shareholders to russian business elites. This benefit to the russian oligarchs will be far greater than the yachts that were seized, while shutting down russian subsidiaries makes for a great pr move.

It will only have a limited impact on the russian economy and putin's war machine, at least in the short term, while russia has been able to offset most of the effects of the sanctions in the short term. The long-term picture is much bleaker. Many western high-tech products like smartphones and computers will be very difficult, if not impossible, for russia to make on their own, for example, apple, stopped exporting iphones to russia. Russia has their own local smartphone manufacturers.

Their is smartphone is a very capable device which sells for less than 150 dollars, while they can assemble the device domestically. Their domestic semiconductor manufacturing capabilities are almost non-existent, especially for higher end chips. Manufacturing semiconductors is extremely difficult and russia has relied heavily on imports from taiwan and south korea. Both countries are parties to the western sanctions and have implemented semiconductor embargoes against russia.

They can import some chips from china. Currently, china only produces simpler chips, such as the ones used in automobiles and generally less sophisticated products. As long as the semiconductor sanctions remain in place, russia's domestic technology hardware industry will grind to a near halt. Also, russia's own oil refining capacity will gradually start lagging behind western countries, as they will no longer have access to many of the leading edge refining technologies developed in the u.s.

This doesn't mean that russia will go back to the stone age in recent years. Russia has dramatically increased its ties with china, and chinese brands made up three-fifths of the russian smartphone market last year. This number is now probably closer to 100, as apple and samsung's suspended shipments to the country. The western sanctions will certainly have a negative impact on the russian economy in the long term, especially in the technology sector, but this will take years to have a significant effect.

In the meantime, a combination of capital controls and high energy prices have put russia into a surprisingly strong position. Unfortunately, this means that they will have sufficient financial resources to continue their invasion of ukraine, at least in the short to medium term. Alright guys that wraps it up for this video, are you surprised that ruble is the best performing currency of 2022? Let us know in the comments section below, as always. Thank you so much for watching and we'll see in the next one wall, street millennial signing out.