Russian Stock Market Will Partially Reopen On Thursday

The Russian stock market is expected to partially reopen on Thursday, almost a month after it was closed following the Ukrainian invasion.

The challenge for Moscow is that resuming trading could simply return Russian stocks to free fall. Russia’s major stock index fell 33% on February 24, when President Vladimir Putin began assaulting Ukraine. The index regained some of these losses on February 25 (the last day of the transaction), before Western sanctions defeated the ruble and put the country in an economic crisis.

To limit fallout, Moscow turned to some tedious policies. This prevented foreign investors from dumping local stock. This is a move that some market participants saw as retaliation for the Western freeze on the assets of the Central Bank of Russia, as most of the Russian market is owned by foreigners. The Russian government has ordered sovereign wealth funds to buy billions of dollars worth of stock.

The Russian stock market can eventually be significantly different than before, and people familiar with the matter are considering plans to split into separate markets for foreign and domestic investors. ..

The Central Bank of Russia announced on Wednesday that it will allow trading of 33 of the 50 shares in the MOEX benchmark stock index from 9:50 am to 2:00 pm Moscow time. Among the companies traded are Gazprom PJSC and Lukoil PJSC. Bet on the decline of stocks known as short cells is prohibited.

The headquarters of the Russian central bank states that the country’s financial markets will gradually reopen.

Photo: Andrey Rudakov / Bloomberg News

Under the policy announced by the Central Bank on February 28, Russian brokerage firms are not allowed to sell securities to foreign clients. This will prevent foreigners from bolting to the exit as soon as the market reopens. This could be ruined due to their oversized role in Russian stocks. As of February 2020, international institutional investors held about three-quarters of the free floats in the Russian market, according to Sberbank Investment Research.

As a result, there is growing concern that the market may be distorted by the absence of foreign investors, who accounted for nearly half of the stock trading volume on the Moscow Stock Exchange in the first half of last year.

Vladimir Kleindel, CEO of the Moscow company ETF Consulting, said: Advise the issuers of exchange-traded funds.

Western investors who held Russian stocks before the freeze included asset management giants Vanguard Group and Fidelity International. Both companies say they are reducing their exposure to Russia.

The freeze eliminates the need for foreign investors to do anything when the stock market reopens.

However, the plans under consideration by Russian authorities are still in the debate stage, relating the country’s stock market to effectively split into two, one for foreigners and one for local investors. Said. The deal allows foreign investors to sell their stocks and bonds, but the capital restrictions imposed by Moscow since February will face restrictions on the transfer of earnings from Russia, he said. Said.

Such a bifurcated market can have strange consequences, such as the same stock having two different prices. It’s not completely unprecedented. In China, there has been a long discrepancy between shares on the Shanghai and Shenzhen mainland exchanges and shares listed on Hong Kong.

It also prevents the ruble from becoming even less valuable. Russia’s currency has been stable in recent sessions, trading near 104 rubles per dollar, but remains 22% weaker than it was before Russia invaded Ukraine.

“The biggest concern is that central banks have been sanctioned and foreign investors don’t want to sell their shares, buy rubles and buy hard currencies,” said Emerging Markets Fund Manager. Jacob Grapengyser, Head of Eastern Europe for East Capital, said.

The Moscow Stock Exchange said Monday that it would allow foreign investors to settle transactions that were made before February 28 and are still in process. Grapengiesser said his company has transactions still awaiting resolution from the start of the war and expects him to pass soon.

“It’s a natural step before opening the market. You need to take care of those unresolved transactions,” he said. “Things are moving slowly.”

Shortly after the war began, the Russian Prime Minister ordered the national wealth fund to buy up to $ 1 trillion rubles worth $ 9.38 billion this year. Analysts also hope that some Russian oil companies will support stock prices in repurchase programs.

Local investors may also buy stocks. When Russia invaded Crimea, MOEX fell by almost 18% from mid-February to mid-March 2014. However, by the end of the year, MOEX had recovered more than 12% from its March lows. The broad index has all recorded an increase except for the year 2014. Equities in volatile countries also serve as a hedge against inflation, as locals expect locals to be able to offset rising costs by charging higher prices.

A board showing the exchange rates of the US dollar and the euro against the Russian ruble in Moscow last month. Since then, Western sanctions have hit the ruble.

Photo: dimitar dilkoff / Agence France-Presse / Getty Images

Due to government efforts, some people are cautiously optimistic about reopening. “Initially, I think there will be some modest revisions,” said Natalia Smirnova, Moscow’s financial adviser. “But we don’t mean to rule out the possibility that the first day will end in a slight increase.”

Russia is a global financial market minnow. According to the World Exchange Union, in December 2021, companies listed on the Moscow Stock Exchange had a market capitalization of approximately $ 842 billion, just below 90% of Tesla’s current value. This made the Moscow Stock Exchange the 20th largest. In the WFE Global Exchange Ranking, it trades at market capitalization just above Brazil’s B3 Exchange.

Until the war, Russia was primarily focused on specialized emerging market funds and hedge funds, but accounted for only a small portion of the holdings of most global-minded investors.

MSCI Inc. said it would remove Russian stocks from the influential indexes that track emerging markets. Before the war, MSCI’s Emerging Markets Index weighed 2.8% over Russia. FTSE Russell has also announced plans to remove Russian stocks from the index. This move will force investors whose holdings are tracking the index to sell if possible.

The war, which is unusual, previously led to the closure of the stock market. The New York Stock Exchange was closed for about four months when World War I broke out in 1914. This is the longest closure of the New York Stock Exchange in history. The Beirut Stock Exchange was reopened in 1996 after being closed for nearly 13 years by the Lebanese Civil War.

The consequences of severe economic sanctions on Russia are already felt around the world. The WSJ’s GregIp will work with other experts to explain the importance of what has happened so far and how conflicts can change the global economy.Photo Illustration: Alexander Hotts

Write to Alexander Osipovich ([email protected]) and Caitlin Ostroff ([email protected]).