Russian stocks slip further on jetliner crash

Stock markets in Russia slumped further on Friday morning, with losses accelerating during the session, as investors shunned riskier assets on the news of the Malaysian Airlines jetliner crashing in eastern Ukraine.

Russia's blue-chip MICEX index opened lower by around 1.7 percent and was trading 1.6 percent lower by 1 p.m. London time.

Conglomerate Sistema led the fallers with losses of 3 percent and airline Aeroflot also traded lower by 2.9 percent. The main stocks pulling down the bourse, however, were the heavily-weighted Gazprom, Lukoil and Sberbank. The index is now down over 5 percent year-to-date, despite seeing a sharp one-day correction of 10 percent in early March.

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Moscow's RTS Index also continued its fall, trading down 2.7 percent in the morning session. Meanwhile, the Russian ruble eased one percent against the dollar, which came after a sharp depreciation on Thursday with the Russian currency reaching its lowest point against the U.S. dollar since May 8.

Currency analysts at BNY Mellon said they wouldn't be surprised if the MICEX and ruble shrugged off both the sanctions and any uncertainty following the crash in the near term. Looking at historical data, they said Russian assets had outperformed many favored markets until very recently.

"Despite pronounced geopolitical risks and the imposition of sanctions weighing upon the Russian economy, markets have instead focused upon evident merits, which in the case of the ruble and MICEX can only mean two things: oil and gold, both currently to be found stabilizing at fairly elevated levels," Neil Mellor, a senior currency strategist at the bank, said in a morning note.

On Thursday afternoon, a Malaysia Airlines passenger plane carrying 298 people crashed over eastern Ukraine after being hit by a surface-to-air missile, U.S. officials said. Both the Ukrainian government and pro-Russian rebels fighting in the region have denied responsibility.

The Malaysian Airlines crash came a day after the U.S. and European Union announced a fresh round of sanctions against Russia, following the annexation of Crimea back in April and ongoing tensions in the rest of Ukraine. Russia's oil producer Rosneft was hit by the U.S. penalties, along with other energy, financial and defense firms.

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European investors took a measured look at the events in Ukraine with pan-European benchmarks showing moderate losses on Friday. Airline stocks led the declines with Air France, Ryanair and Lufthansa all posting losses of over 1 percent. Insurance stocks were also hit, with Allianz - the lead insurer for Malaysia Airlines - slipping 0.35 percent at the open.

In Asia, Malaysia Airlines closed down 11 percent after slumping as much as 15 percent at the open. Major indexes on the continent were mostly lower on Friday. On Wall Street, U.S. stocks tumbled on Thursday, with the Dow falling back below 17,000. The VIX (CBOE's Volatility Index) - a fear gauge in U.S. markets - also saw its largest intraday move since April last year on Thursday.

Emerging market currencies saw a brief blip on Thursday after the incident was first report. The Mexican peso, the Turkish lira, the South African rand and the Brazilian real all lost ground against the dollar, but managed to claw back losses by Friday morning. Traditional safe-haven trades like gold, U.S> Treasurys and the Japanese yen saw buying with fears that these geopolitical tensions may now escalate after the crash. Gold dipped slightly on Friday, trading at $1,313 per ounce as investors took some profit, although the precious metal remained supported on this latest round of risk aversion.

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Marshall Gittler, the head of global FX strategy at IronFX, told CNBC via email that asset markets were showing "textbook 'risk-off' behavior" and would concentrate on Friday's UN Security Council meeting for further news.

"I'd expect to see more mean reversion today as long as the situation in Ukraine doesn't escalate. In fact I wonder if this tragedy might be the trigger for a resolution of the Ukraine crisis – as long as the fighting was within Ukraine it could be ignored, but now that the rest of the world is dragged in, both sides may say 'enough'," he said.

Thin summer markets and a lengthy risk rally also accentuated Thursday's selloff, according to Kit Juckes, global head of foreign exchange strategy at Societe Generale. He added that the mood in markets on Friday morning was "pretty dire", but expected investors to start differentiating between assets and sectors.

"The pressure on Russia over the Ukraine conflict will increase and that region's assets will remain under pressure for a while. Yesterday's rate cut and protests against Israel across Turkey can add to risk aversion there. But beyond this week, MH17 will be seen as a human tragedy rather than a geopolitical crisis. I expect (emerging markets) to stabilize in the coming weeks - but today is clearly starting in a risk-averse mood," he told CNBC via email.