NEW YORK (AP) — The Russian stock market opened Thursday for limited trading under heavy restrictions for the first time since Moscow invaded Ukraine, nearly a month after prices fell and the market closed to to isolate the economy.
Trading in a limited number of stocks, including energy giants Gazprom and Rosneft, took place under restrictions designed to prevent a repeat of the February 24 sell-off in anticipation of Western economic sanctions.
Severe restrictions on trading on Thursday underscored Russia’s economic isolation and pressure on the financial system despite central bank efforts to stem falling markets. Foreigners couldn’t sell shares and traders weren’t allowed to sell short – otherwise betting prices would plummet – as the government said it would spend $10bn on stocks within months ahead, a move that should support prices.
The benchmark MOEX gained 4.4% as some companies partially recouped losses from the plunge on the day of the invasion. Airline Aeroflot bucked the positive trend, losing 16.4% – no surprise after the United States, European Union and others banned Russian planes from their airspaces.
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Russian stocks were a small part of emerging market stock indices even before the war and only for those with high risk tolerance, given the extensive cronyism, non-transparent accounting and interference widespread state. They lost all appeal to most foreign investors when the Moscow Stock Exchange was dubbed “uninvestable” about a week after the war began.
“The stock market is really almost a sideshow at this point,” said Chris Weafer, CEO of Macro-Advisory Ltd., an advisory firm. “It’s more of a sentiment indicator because obviously companies don’t raise money on the stock market, and they won’t be able to.”
He said, however, that banks or state funds may be buying to support prices: “It looks like state-backed buying rather than genuine investor interest.”
The government’s efforts to stabilize stocks and the ruble which has plunged in value are a way to show that some confidence is returning and “to try to get this message across to people not to panic, that this is of a temporary situation that will improve,” Weafer mentioned. Nevertheless, he added, the Russian financial system remains in a “fragile” state.
Tim Ash, senior sovereign emerging markets strategist at BlueBay Asset Management, said the reopening of trading was “deeply managed” and suggested that “for Russians with a bit of cash in reserve, there is no nothing else to buy as a hedge against inflation and collapsing currencies”.
Restrictions such as shutting down and restricting the stock market are among those Russia has taken to protect the financial system from total collapse, but they also close the economy to trade and investment that could fuel growth.
Some overseas hedge funds have expressed interest in buying distressed assets — viable companies trading at knockdown prices — but they have no way to participate due to trading restrictions, Weafer said.
A US official called the strictly restricted trade a “charade”.
“It’s not a real market or a sustainable model, which only underscores Russia’s isolation from the global financial system,” said Daleep Singh, deputy national security and economic adviser. of President Joe Biden, in a statement.
Economic turmoil in Russia due to sanctions and war has been severe. Hundreds of American, European and Japanese companies have withdrawn from Russia. There have been bank runs and panic buying of sugar and other commodities. The Russian ruble exchange rate fell.
Outside of Russia, the reopening of stock trading on the Moscow Stock Exchange has little impact, including on the vast majority of US investors’ portfolios, said Leanna Devinney of Fidelity Investments.
The market capitalization of the exchange – about $773 billion at the end of last year, according to the World Federation of Exchanges – is a fraction of that of major Western or Asian markets. By comparison, the total of all stocks on the New York Stock Exchange is around $28 trillion.
Russia’s central bank estimates that retail investors held around 7.7 trillion rubles worth of stocks, or $79 billion, at the end of 2021.
The shares were last traded in Moscow on February 25, a day after the MOEX fell 33% after Russian forces invaded Ukraine. Russia resumed trading in ruble-denominated government bonds earlier this week.
About a week after the dispute began, Russia was removed from the emerging markets indexes compiled by MSCI after it was determined that the market was “uninvestable”.
The London Stock Exchange on March 3 suspended trading in the shares of 27 companies with ties to Russia, including some of the largest in the energy and financial sectors. Shares lost most of their value before that: Rosneft fell from $7.91 on Feb. 16 to 60 cents on March 2. Sberbank plunged from $14.90 to 5 cents.
This story has been corrected to show that MSCI is no longer a division of Morgan Stanley.
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