Russian stock market, crushed by war, opens with big limits

The Russian Stock market opened recently after being crushed by the war. The market opened with heavy restrictions after being shut down a month ago when Moscow invaded Ukraine. The Stock market was closed to isolate the economy because the prices plunged when the war was declared. 

Upmarket Academy brings you everything you need about the Russian Stock market. 

The Russian stock opened with limited stock and is mainly to prevent the energy giants from selling off because of the sanctions by the western countries. Moreover, Russia went into economic isolation when it declared war against Ukraine.

Russia’s economic isolation

During the early months of the war, Russia’s resilience against sanctions was surprising. But, later, it was discovered that resilience was a sign of economic isolation, and without any surprise, this move was predicted to result in a withered economy in the future. As per economic experts, this was the start of the diminishing of an economic superpower. 

Russia retaliated against Western sanctions by shutting out the west and trading exclusively with friendly nations. Instead, the country shored up business with the partner nations with no stomach to question Russia’s moves. 

The nation didn’t fail and was initially successful because it weaponized the energy trade, halted gas flows to European countries, and sold the leftovers to China and India. With this sale, Russia gained over $24 billion in the first 3 months of the war. 

But, economists were sure that Russia was setting baby steps into a deep state of economic isolation which in no way could benefit the country in the long run. 

The faded energy advantage 

Russia’s biggest energy advantage faded and was a strong punch straight in the gut. According to the International Energy Agency, 45% of Russia’s GDP comprised oil and gas sales. In the long run, boosting and maintaining energy production is a main problem because of the cost of machinery and the technology required for production, mostly produced in the west. This led to the fade of Russia’s superpower. 

Russia’s stock market during the war

  • MOEX tanks leading up to the invasion of Ukraine

MOEX stood for the Moscow Stock Exchange and was established by merging the 2 largest stock exchanges in Moscow. It is also called MICEX-RTS. Russia started bulking up its forces along the Ukraine border between 14th February 2022 and 23 February 2022. In the same week, the US president, Joe Biden, announced his decision to halt any economic activities in Russia such as import, export, and even investment. The UK followed US footsteps and froze the assets of major Russian banks. On the same day, Germany backed out from the $11 billion deal to build a pipeline between the two nations. 

Australia created restrictions that stopped its citizens from interacting with Russian Banks. Japan followed suit by imposing a travel ban and banking restrictions. 

The effect of these measures is reflected in MOEX. The Russian index fell dramatically while Putin lined up his troops at the border. MOEX took a nosedive from 3,683.95 down to 2,058.12.

NYSE and Nasdaq announced they were halting trading in certain Russia-based stocks on their respective stock exchanges. Later, the Russian stock market in Moscow was closed as the prices plunged. 

  • Opening of the Russian Stock market with big limits

The Russian stock market opened for limited trading but was under heavy restrictions for the first time since Moscow invaded Ukraine. The Russian government has said it’ll spend $10 billion on shares in the upcoming months to support prices, with several restrictions on trading, despite the central bank’s effort to curb the market plunges. 

  • The stock indexes performance

The MOEX index, the benchmark of the Russian stock exchange, gained 4.4% because some of the companies partially covered the losses from the plunge on the day of the invasion. 

Airline Aeroflot was a black mark on the positive trend because it lost around 16.4% because the U.S., Europe, and others banned Russian planes from their airspaces. 

A week into the war, the country lost most of the foreign investors as Moscow Exchange was dubbed uninvestable. Russia’s stocks were only a small part of the emerging market indexes before the war. The key players were foreign investors. The loss of trust with foreign investors was another punch in the gut for Russia. 

Government’s efforts and economists’ opinion

Chris Weafer, CEO at Macro-Advisory Ltd., a consulting firm, said, “The stock market is almost a sideshow at this point; it’s more a sentiment indicator because, obviously, companies are not raising any money on the stock market. So it does look like state-supported buying rather than any genuine interest on the part of investors.”

As far as the government’s efforts are considered, the government is taking active steps to send the message across the country for investors not panic, and the temporary situation will improve. Still, the financial system of the country remains in a fragile state. 

Tim Ash, senior emerging markets sovereign strategist at BlueBay Asset Management, said the reopening was deeply managed. There’s nothing much to buy to hedge inflation and the currency collapse for Russians with spare cash. Shutting down the market was one of the biggest mistakes of the country, and it is taking a toll now. The country has undoubtedly taken the economy to utter collapse and closed off the economy to trade and investment that could have fueled growth. 

Foreign hedge funds have expressed interest in shopping for distressed assets like viable companies trading at low prices, but there’s no way for them to take part because of the trading restrictions. 

A U.S. official referred to this strictly restricted trading as a Charade and said that this isn’t a sustainable model. The economic effects of the western sanctions are severe, and they are visible. Bank runs and panic buying of sugar and other staples have been common in the country because of the sanctions mentioned earlier. The exchange rate of Russia’s ruble has tumbled, which turned out to be a major blow. 

According to several people, the reopening has little to no effect on most U.S.-based investors’ portfolios. According to the World Federation of Exchanges, the exchange’s market capitalization is about $773 billion at the end of the last financial year. It is just a fraction of major western or Asian markets. The total of all New York Stock Exchange equities is roughly $28 trillion.

As per the estimation by Russia’s Central bank, investors owned nearly 7.7 trillion rubles of stock, equal to $79 billion as of late 2021. 

Stocks were last traded in Moscow on February 25 2022, a day after MOEX sank around 33% after the invasion. Russia started trading Ruble-denominated government bonds later. 

Conclusion

Russia was removed from the emerging market indexes just a week into the war. The subsequent isolation paved the way for the great plunge. Though the market has been opened, experts call it simulated, and it does not affect foreign investors because of the heavy restrictions.

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