Russia will reopen its stock market for limited trading on March 24, nearly one month after shares plunged and the exchange was shut down following the invasion of Ukraine. Heavy restrictions on trading aim to prevent a massive selloff like the one on Feb. 24, when the MOEX Index sank 33% after President Vladimir Putin ordered the invasion. The central bank announced trading will be allowed in 33 of the 50 companies in the benchmark MOEX Index, including Aeroflot, Gazprom, and Rosneft. The move comes as Western sanctions continue to hammer Russia’s financial system and currency.
Limited trading with heavy restrictions
Stocks last traded in Moscow on Feb. 25. When the market reopens, trading will be limited, and investors’ true sentiment could be difficult to judge. Russia has banned short-selling, where investors bet on stock prices to fall. Foreign shareholders will be unable to sell shares. The Kremlin imposed this restriction to counter Western sanctions against its financial system and the ruble, which has been sharply devalued.
The country’s central bank took nearly a month to relaunch trading in local government bonds denominated in rubles. Average Russians do trade in Russian stocks. The central bank estimated that roughly 7.7 trillion rubles, equal to about $79 billion, of Russia’s stock were owned by retail investors as of late 2021.
Minimal economic significance compared to sanctions
The reopening of Russia’s stock market has only minimal economic significance compared with the heavyweight of U.S.-led sanctions. A myriad of U.S., European, and Japanese companies have pulled out of the country. There have been bank runs and panic buying of staples like sugar. The ruble has been beaten down.
Moscow’s stock exchange is tiny. Its market capitalization was 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 of all equities is roughly $28 trillion. The average exposure by a U.S. investor through a mutual fund or retirement account to Russia is exceedingly small.
“If someone is holding a traditional 60% stock, 40% bond portfolio matched to a global index, their exposure to Russia would be roughly 0.02% of their portfolio,” said Johnson, a market analyst. “Russia barely registers.”
Government support and foreign investor flight
Russia’s government may step in to support its companies and investors. Prime Minister Mikhail Mishustin said that the country’s National Wealth Fund would purchase up to 1 trillion rubles ($10.2 billion) in Russian shares by the end of the year.
Before the war, there had been growing interest in Russian stocks among foreign institutional investors looking for opportunities in emerging markets. But roughly a week into the war, Russia was removed from emerging markets indexes compiled by MSCI, a division of Morgan Stanley. MSCI said that after consultation with a large number of asset managers it determined the Russian stock market to be “uninvestable.” That took away a primary incentive for fund managers to invest there.
On March 3, the London Stock Exchange suspended trading in shares of 27 companies with links to Russia, including some of the biggest in energy and finance. The shares lost most of their value prior to the suspension. For example, shares of the energy company Rosneft dropped from $7.91 on Feb. 16 to 60 cents on March 2. Shares of Sberbank plunged from $14.90 to 5 cents in that same time frame.
The reopening of Russia’s stock market is a symbolic gesture more than an economic one. The country’s financial system remains under severe strain from Western sanctions. The ruble is weak. Foreign investors are gone. And the war in Ukraine shows no signs of ending. For most American investors, the impact is negligible. For Russia, the damage is deep and lasting.
