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

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Russian Stock Exchange Ukraine (Copyright 2022 The Associated Press. All rights reserved)

Russia is reopening its stock market for limited trading nearly a month after stocks plunged and the stock market was closed following the Ukraine invasion.

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

The reopening of the Moscow stock exchange is of minimal importance to investors outside of Russia and a scant economic impact compared to the barrage of US-led sanctions and withdrawals by foreign corporations.

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

“If someone had a traditional 60% stock, 40% bond portfolio paired with 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Hundreds of American, European and Japanese companies have withdrawn from the country; there have been bank runs and panic buying of commodities like sugar; and Russia’s currency, the ruble, has languished.

Under current restrictions, foreign shareholders will not be able to sell shares, a rule imposed to counter Western sanctions against weakening Russia’s currency and financial system.

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

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

Investor sentiment could be difficult to judge given the restrictions in place. The country has banned short selling, in which investors essentially bet on share prices going down.

The Moscow stock exchange is small, with a market capitalization of about $773 billion at the end of last year, according to the World Federation of Exchanges. That is dwarfed by the New York Stock Exchange, where the total for all shares is roughly $28 trillion.

It took almost a month for Russia’s central bank to relaunch trading in local government bonds, denominated in rubles.

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

The Russian government can intervene to support its companies 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) worth of Russian shares by the end of the year.

Before the war, foreign investors were showing increasing interest in Russian equities as an emerging market opportunity. But about a week after the war, Russia was removed from emerging market indices compiled by MSCI, a division of Morgan Stanley.

MCSI said that after consulting with a host of asset managers, it determined that the Russian stock market is “uninvestable.” That removed a main incentive for fund managers to invest there.

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

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