The Russian stock market, crushed by the war, will partially reopen

The Associated Press

NEW YORK (AP) — Russia is reopening its stock market for limited trading nearly a month after stocks tumbled and the stock market shut down following the invasion of Ukraine.

There will be heavy restrictions on trading Thursday when the stock market opens to prevent the type of sell-off that took place on February 24 in anticipation of crushing financial and economic sanctions from Western countries.

The reopening of the Moscow stock exchange is of minimal significance to investors outside Russia and limited economic impact compared to the barrage of US sanctions and withdrawals by foreign companies.

The average exposure of a US investor through a mutual fund or retirement account to Russia is extremely low, according to Ben Johnson, director of global ETF research at Morningstar.

“If someone had a traditional portfolio of 60% stocks and 40% bonds that matched a global index, their exposure to Russia would be about 0.02% of their portfolio,” Johnson said. “Russia barely registers.”

Hundreds of American, European and Japanese companies have withdrawn from the country; there have been bank runs and panic buying of commodities like sugar; and the Russian currency, the rouble, languished.

Under the restrictions in place, foreign shareholders will not be able to sell shares – a rule imposed to counter Western sanctions against Russia’s weakened financial system and currency.

Trading will be allowed in 33 of the 50 companies that are part of the country’s MOEX benchmark, including air carrier Aeroflot, state-owned gas producer Gazprom and oil company Rosneft, according to a central bank announcement about reopening .

The shares were last traded in Moscow on February 25. A day earlier, the MOEX fell 33% after Russian forces invaded Ukraine.

Investor sentiment could be difficult to judge given the prevailing constraints. The country has banned short selling, in which investors essentially bet on falling stock prices.

The Moscow exchange is tiny, with a market capitalization of around $773 billion at the end of last year, according to the World Federation of Exchanges. This is dwarfed by the New York Stock Exchange, where the total of all stocks is around $28 trillion.

It took nearly a month for the Russian central bank to restart trading in ruble-denominated local government bonds.

Average Russians trade Russian stocks: The central bank estimates that about 7.7 trillion rubles, or about $79 billion, of Russian stocks belonged to retail investors at the end of 2021.

The Russian government could step in to support its businesses and investors. Prime Minister Mikhail Mishustin said on March 1 that the country’s National Wealth Fund would buy up to 1 trillion rubles ($10.2 billion) of Russian stocks by the end of the year.

Before the war, foreign investors showed growing interest in Russian stocks as an opportunity for emerging markets. But about a week after the start of the war, Russia was removed from the emerging market indices compiled by MSCI, a division of Morgan Stanley.

MCSI said that after consulting with a large number of asset managers, it had determined that the Russian stock market was “uninvestable”. This removed a primary incentive for fund managers to invest there.

On March 3, the London Stock Exchange suspended trading in the shares of 27 companies with ties to Russia, including some of the largest in the energy and financial sectors. The shares lost most of their value before the suspension. For example, shares of energy company Rosneft fell from $7.91 on February 16 to 60 cents on March 2, while Sberbank shares plunged from $14.90 to 5 cents during the same period. period.

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