War-ravaged Russian stock markets will partially reopen

NEW YORK (AP) – Russia is reopening its stock market for limited trading, nearly a month after the exchanges were closed following plunging stocks and the invasion of Ukraine.

There will be heavy restrictions on trading on Thursday as exchanges open to prevent heavy selling that took place on February 24 in anticipation of crushing financial and economic sanctions from Western countries.

The reopening of the Moscow Exchange has only minimal significance for investors outside Russia and has less economic impact than US-led sanctions and withdrawals by foreign corporations.

According to Ben Johnson, director of global ETF research at Morningstar, the average risk in Russia through a mutual fund or retirement account by an American investor is very small.

“If someone held a traditional 60% stock, 40% bond portfolio matched to 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 moved out of the country; Banks are running out and staples like sugar are panicking; And Russia’s currency, the ruble, is depleted.

Under the sanctions in place, foreign shareholders would be unable to sell the shares – a rule meant to counter Russia’s weak financial system and Western sanctions against the currency.

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

Stocks were last traded on February 25 in Moscow. MOEX sank 33% after Russian forces invaded Ukraine the day before.

Investor sentiment may be difficult to gauge given the restrictions in force. The country has banned short-selling, in which investors essentially bet on stock prices to go down.

Moscow’s 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. It is dwarfed by the New York Stock Exchange, where all equity totals approximately $28 trillion.

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

The average Russian trades in Russian stocks: the central bank estimated that by the end of 2021, about 7.7 trillion rubles of Russia’s stock, the equivalent of about $79 billion, were owned by retail investors.

Russia’s 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) in Russian stocks by the end of the year.

Before the war, foreign investors were showing increasing interest in Russian stocks as an emerging market opportunity. But nearly a week after the war, Russia was dropped from an emerging markets index compiled by MSCI, a division of Morgan Stanley.

MCSI said it determined the Russian stock market as “uninvestable” after consultation with a number of asset managers. This took away a primary incentive for fund managers to invest there.

On 3 March, the London Stock Exchange suspended trading in the shares of 27 companies with links to Russia, including some of the biggest companies 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 fell from $ 14.90 to 5 cents in the same time frame.

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