Russia’s economy is crumbling even as its stock market reopens

The Russian stock market opened on Thursday for limited trading with strong restrictions for the first time since Moscow invaded Ukraine, almost a month after prices fell and the market closed as a way to isolate the economy.

Negotiations for a limited number of shares, including energy giants Gazprom and Rosneft, were conducted under restrictions aimed at preventing a repeat of the February 24 mass sale that came in anticipation of Western economic sanctions. .

Heavy trade restrictions on Thursday underscored Russia’s economic isolation and pressure from the financial system despite the central bank’s efforts to curb market crashes. Foreigners were unable to sell and traders were unable to sell short (or betting prices will fall), while the government has said it will spend $ 10 billion on shares in the coming months, a move that should give price support.

• The Russians may not be able to withstand the “economic siege,” experts say

Tim Ash, a senior emerging market strategist at BlueBay Asset Management, said the reopening of trading was “deeply managed” and suggested that “for Russians with a little cash left over, there’s nothing else to buy like to cover inflation and the collapse of the currency “.

The MOEX benchmark index gained 4.3%, as some companies partially recovered the losses from the fall on the day of the invasion. The airline Aeroflot countered the positive trend by losing 16.4%, not a surprise after the US, the European Union and others banned Russian aircraft from their airspace.

The shares were last traded in Moscow on February 25, a day after the MOEX collapsed 33% after Russian forces invaded Ukraine. Russia has resumed trading on ruble-denominated government bonds earlier this week.

A US official described the severely restricted market as a “farce”, with only a few listed shares, and Russia made it clear that it would “pour in government resources to artificially support the shares of listed companies”.

“This is not a real market or a sustainable model, which only underscores Russia’s isolation from the global financial system,” Daleep Singh, a senior national and economic security adviser to President Joe Biden, said in a statement.

Outside of Russia, the reopening of the Moscow Stock Exchange has little impact. Its market capitalization is a fraction of that of the major Western or Asian markets. In addition, foreigners cannot sell shares in accordance with the rules imposed to counter Western sanctions.

The Moscow Stock Exchange had a market capitalization of about $ 773 billion at the end of last year, according to the World Exchange Federation. This is overshadowed by the New York Stock Exchange, where the total of all shares is approximately $ 28 trillion.

Devastating toll

However, the resumption of trade in the MOEX is unlikely to help most Russians, as the cost of financial sanctions and reduced trade are devastating the country’s economy. The Institute of International Finance (IIF), a trading group representing major financial firms, forecast a 15% drop in Russia’s growth this year due to the war in Ukraine and another 3% drop in the week. 2023.

“Overall, our projections mean that current advances should erase the economic gains of about 15 years,” IIF said in a report.

Hundreds of Americans, Europeans and Japanese companies have withdrawn from Russia. There have been bank runs and panic purchases of sugar and other commodities. The exchange rate of The Russian ruble has fallen.

Goldman Sachs analysts expect slightly less damage to Russia’s economy, projecting a still painful drop of 10% of the country’s gross domestic product. The conflict is also hurting global economic growth, with the bank reducing its global GDP forecast to 3.2% this year.