This is the first time that the Russian stock market has opened since Moscow invaded Ukraine. It comes almost a month after the collapse in prices and the market was closed to protect the economy.
A limited number of stocks were traded, including Gazprom and Rosneft energy giants, under restrictions to avoid a repeat of the huge selloff that occurred on February 24, in anticipation of Western economic sanctions.
The restrictions on trading on Thursday highlighted Russia’s economic isolation. They also underscored the pressure on financial system despite efforts by the central bank to reduce market plunges. Foreigners couldn’t sell stocks and traders were prohibited from short selling (or betting that prices will fall). However, the government said it would spend $10 billion on shares over the next few months. This should help support prices.
The benchmark MOEX index rose 4.4% due to partial recovery of losses from the plunge that occurred on the day following the invasion. Airline Aeroflot lost 16.4%, despite the positive trend. This is not surprising considering that the U.S. and other countries had banned Russian planes from their airspaces .
Russian stocks made up a very small percentage of emerging market share indexes before the war. They were only accessible to those who could tolerate high risks due to cronyism and nontransparent accounting. After the Moscow Exchange was declared “uninvestable” a week after the war, they lost their appeal to foreign investors.
Chris Weafer CEO of Macro-Advisory Ltd., an accounting firm, stated that the stock market was “almost a sideshow at this stage.” “It’s more of a sentiment indicator since obviously companies aren’t raising any money on stock market and they won’t.”
However, he said that state-owned funds or banks may have bought to support prices. “It looks like state-supported purchasing rather than genuine interest on the part investors.”
Weafer stated that government efforts to stabilize stocks, and the ruble’s value that has fallen in value are an attempt to signal that confidence is returning. He said that the Russian financial system was still in “fragile” condition.
BlueBay Asset Management senior emerging markets strategist Tim Ash said that reopened trading was “deeply controlled” and suggested that Russians who have some spare cash could buy nothing else as a hedge against currency collapse and inflation.
Russia has taken measures to protect its financial system from total collapse. However, they have also closed off trade and investment opportunities that could drive growth.
Weafer stated that some foreign hedge funds are interested in buying distressed assets, viable companies trading at discounted prices. However, they do not have the means to participate due to trading restrictions.
The severely restricted trading was called a “charade” by a U.S. official.
“This isn’t a real market, and it’s not sustainable,” Dalep Singh, a senior economic and national security adviser to President Joe Biden said in a statement.
Russia’s economic crisis has been severe due to sanctions and war. Many U.S., European, and Japanese companies have withdrawn from Russia. Bank runs have occurred, as well panic buying of sugar and other staples. The ruble exchange rate has fallen.
According to Leanna Devinney, Fidelity Investments, the reopening stock trading on Moscow Exchange is unlikely to have any impact on investors outside of Russia.
According to the World Federation of Exchanges, the exchange’s market capitalization of $773 billion was only a fraction of the value of major Asian or Western markets. Comparatively, the New York Stock Exchange’s total equities is approximately $28 trillion.
Russia’s central bank estimated that retail investors had approximately 7.7 trillion rubles worth of stock. This is equivalent to $79 billion as of the end of 2021.
The last stock exchange traded in Moscow was Feb. 25, the day after the MOEX fell 33% following Russian invasion of Ukraine. Russia resumed trading in ruble denominated government bonds earlier in the week.
After determining that Russia was “uninvestable”, MSCI removed Russia from the emerging market indexes. This happened about a week after the conflict began.
On March 3, the London Stock Exchange stopped trading in shares of 27 Russian-linked companies. These included some of the largest in finance and energy. Rosneft plunged from $7.91 on February 16 to 60c on March 2. Sberbank fell from $14.90 – 5 cents.
