The Russian stock market is preparing for an unusual reopening

Russian officials are signaling that the country’s stock market will soon reopen, nearly a month after it closed following the invasion of Ukraine.

The challenge for Moscow is that the resumption of trading could simply send Russian stocks back into a tailspin. On February 24, the day President Vladimir Putin launched the assault on Ukraine, Russia’s main stock market index fell 33%. While the index recouped a fraction of those losses on Feb. 25, its last day of trading was before Western sanctions hit the ruble and sent the country into economic crisis.

To limit the fallout, Moscow has turned to tough policies. It has prevented foreign investors from dumping local stocks – a move some market participants have seen as retaliation for the Western freezing of Russian central bank assets, as much of the Russian market is owned by foreigners. The Russian government ordered a sovereign wealth fund to buy billions of dollars worth of stocks.

The Russian stock market could ultimately look very different from what it was before, with a plan being discussed to split it into separate markets for foreign and local investors, according to a person familiar with the matter.

Russia’s central bank said markets would reopen in phases. The first step took place on Monday, when trading resumed on government bonds. Although officials gave no date for the reopening of the exchange, it could be soon. Moscow-based brokerage firm Aton said in a report on Monday that it will happen “probably this week or next.”

The headquarters of Russia’s central bank, which said the country’s financial markets would reopen in phases.


Andrei Rudakov/Bloomberg News

Under a policy announced by the central bank on Feb. 28, Russian brokerages are not allowed to let foreign clients sell securities. This will prevent foreigners from rushing to the exits as soon as the market reopens, which could be ruinous due to their outsized role in Russian stocks. International institutional investors held around three-quarters of the Russian market’s free float in February 2020, according to Sberbank Investment Research.

That raised fears that the market could be distorted by the absence of foreign investors, who accounted for almost half of the stock trading volume on the Moscow Stock Exchange in the first half of last year.

“There will be the illusion of a functioning and recovering Russian stock market, although a large part of the market participants – foreigners – will not have the opportunity to sell,” said Vladimir Kreyndel, CEO of ‘ETF Consulting, a Moscow company that advises issuers of exchange-traded funds.

Western investors who held Russian stocks before the freeze included asset management giants Vanguard Group and Fidelity International. Both companies said they were reducing their exposure to Russia.

Due to the freeze, foreign investors won’t have much to do when the stock market reopens.

But the plan envisaged by Russian officials – which is still in discussion – would effectively split the country’s securities market in two, with one market for foreigners and another for local investors, said the person familiar with the case. Under the arrangement, foreign investors could sell their stocks or bonds but would face restrictions on transferring the proceeds out of Russia due to capital controls Moscow has imposed since February, the person said.

Such a bifurcated market could lead to oddities, such as the same stock having two different prices. It’s not completely unprecedented. In China, there have long been discrepancies between stocks on mainland exchanges in Shanghai and Shenzhen and those listed in Hong Kong.

It could also prevent further erosion in the value of the ruble. The Russian currency has stabilized in recent sessions to trade near 104 rubles to the dollar, although it remains 22% weaker than before Russia invaded Ukraine.

“The biggest fear is that the central bank is under sanctions and does not want foreign investors to sell their stocks, take the ruble and buy hard currencies,” said Jacob Grapengiesser, head of Europe. ‘Is at emerging markets fund manager East Capital.

In another sign that the stock market is heading towards reopening, the Moscow Stock Exchange said on Monday it would allow settlement of trades that foreign investors had placed before Feb. 28 and were still being processed. Mr Grapengiesser said his company still had transactions awaiting settlement from the start of the war which he expects to go through soon.

“It’s a natural step before the opening of the market. You have to deal with those unsettled trades,” he said. “Things are progressing slowly”

Shortly after the war began, Russia’s prime minister ordered the country’s National Wealth Fund to buy up to a trillion rubles, or the equivalent of $9.38 billion worth of stock this year. Analysts also expect some Russian oil companies to support their stock prices with buyback programs.

Local investors can also buy shares. When Russia invaded Crimea, the MOEX fell nearly 18% between mid-February and mid-March 2014. But by the end of that year, it had rebounded more than 12% from this March trough. The broad index has posted gains in all but one year since 2014. Stocks in unstable countries can also act as a hedge against inflation, as locals expect companies to be able to offset rising costs by charging higher prices.

A chart showing the US dollar and euro exchange rates against the Russian ruble in Moscow last month. Western sanctions have since hammered the rouble.


Dimitar Dilkoff/Agence France-Presse/Getty Images

Government efforts have led some to be cautiously optimistic about reopening. “At first, I think there will be a moderate correction,” said Natalia Smirnova, a financial adviser in Moscow. “But I wouldn’t rule out the possibility that day one could end with a modest raise.”

Russia is a minnow of a global financial market. As of December 2021, the total market capitalization of companies listed on the Moscow Stock Exchange was around $842 billion, according to the World Federation of Exchanges, just under 90% of Tesla Inc’s current value..

This made the Moscow Stock Exchange the 20th largest stock exchange by market capitalization, just above the Brazilian stock exchange B3, in the WFE ranking of world stock exchanges.

Until the war, Russia primarily attracted the attention of emerging markets and hedge funds, although it was only a fraction of the holdings of most global-minded investors.

MSCI inc..

said it would remove Russian stocks from its influential indexes that track emerging markets. Before the war, the MSCI Emerging Markets Index had a 2.8% weighting for Russia. FTSE Russell has also announced its intention to remove Russian stocks from its indexes. The moves will force investors whose holdings track the indices to sell, when they can.

Wars have led to stock exchange closures before, although this is unusual. The New York Stock Exchange closed for about four months when World War I broke out in 1914, the longest shutdown in NYSE history. The Beirut Stock Exchange reopened in 1996 after a nearly 13-year closure caused by Lebanon’s civil war.

The consequences of the harsh economic sanctions against Russia are already being felt around the world. The WSJ’s Greg Ip joins other experts in explaining the significance of what has happened so far and how the conflict could transform the global economy. Photo illustration: Alexandre Hotz

Write to Alexander Osipovich at [email protected] and Caitlin Ostroff at [email protected]

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