Russian stocks gain on start of local trading

Moscow Trading on the Moscow Stock Exchange was suspended for three weeks. Business resumed Thursday, albeit under what the US government has described as a charade. At the restart, many stocks posted price gains.

For western investors, however, the reopening of the stock exchange will have no consequences. “Foreign investors are still unable to sell,” says the emerging market expert from a large asset manager, describing the situation. They are threatened with high losses, both for stocks and bonds.

The Moscow Stock Exchange suspended trading after February 25, shortly after the start of the war in Ukraine and after Western sanctions caused a stock market crash. Thursday saw a restart for 33 well-known titles in an abbreviated session.

These included companies such as the oil companies Gazprom and Lukoil, the major bank Sberbank and the aviation group Aeroflot. With the exception of the airline, the shares gained significantly in value, Lukoil more than ten percent. The leading index Moex rose by 4.4 percent. “The drivers are probably domestic investors who get in after the sharp price losses and see it as a protection against the high inflation in the country,” says Sebastian Kahlfeld from DWS.

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But measured against the highs of last October, the losses are still large. Some courses have halved, the value of Sberbank has even tripled.

Despite the reopening, international investors are still unable to trade in Russian stocks. According to an order from the Kremlin, Russian stock traders are not allowed to accept sell orders from foreigners. But even if that were possible, according to experts, exchanging rubles for international currencies such as dollars or euros remains difficult if not impossible because of Russian capital controls.

Trading practically impossible

In addition, Russian banks are cut off from the Swift global payment information system. In addition, with Euroclear and Clearstream, the largest clearing houses no longer clear Russian assets. Russian papers continue to be exposed to foreign trading venues. This applies, for example, to Deutsche Börse and the London Stock Exchange.

Russia wants to protect its own assets, including the ruble, from the burden of Western sanctions as much as possible. Bets on price losses of the now tradable shares are prohibited. In addition, according to reports, the Russian sovereign wealth fund bought shares on a larger scale when the stock exchange reopened.

Against this background, experts such as Iskander Lutsko, chief strategist at ITI Capital in Moscow, expect the market to recover further. Some investors would be attracted by the sharp fall in prices. However, the positive assessment could become untenable if foreign investors were allowed to sell existing positions again.

Large Western investors usually have no significant holdings in Russia. For German addresses, the rate is less than one percent, according to research by the Handelsblatt. The situation is similar for influential Western European investors. The Norwegian sovereign wealth fund, for example, has put its exposure to Russia at 0.2 percent of its capital and has announced that it will sell its holdings as soon as possible.

Funds remain frozen

Some German investors are invested in Russian stocks via funds. It is primarily about purely Russian equity funds or Eastern Europe products with a typically high Russian share of up to two-thirds. Such offers have been frozen by the fund companies, so unitholders can neither buy nor sell them at the moment.

This applies, for example, to the index funds of the world’s largest asset manager Blackrock. Vanguard, number two in the global ranking, has kept its mixed funds with index fund components, which are also offered in Germany, open. For the small part of Russian shares, the experts estimate what they believe to be an appropriate value, as a company spokesman explains.

Basically, the importance of Russian equities for active funds such as index funds has decreased. Major index providers such as MSCI and FTSE Russel removed Russia from their emerging market benchmarks in March.

criticism from the United States

The US government has described the resumption of trading on the Moscow Stock Exchange as a “charade”. “This is not a real market and not a sustainable model, which only underscores Russia’s isolation from the global financial system,” Deputy National Security Advisor Daleep Singh said Thursday.

Russia has made it clear that it will use state funds to artificially support the shares of trading companies. Only 15 percent of the listed shares are admitted to trading. The United States and its allies would continue to take steps to isolate Russia from the international economic order.

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