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Russian stock market, crushed by war, partially reopening

EconomyRussian stock market, crushed by war, partially reopening

New York (Times Of Ocean)- Russia is reopening its stock market for limited trading nearly a month after shares plunged and the exchange was shut down after the invasion of Ukraine.

As the exchange opens Thursday, heavy restrictions will be in place to prevent the kind of selloff that occurred on Feb. 24 in anticipation of devastating financial and economic sanctions from Western nations.

Compared with the barrage of U.S.-led sanctions and withdrawals by foreign corporations, the reopening of the Moscow exchange is of little significance for investors outside Russia.

According to Ben Johnson, director of global ETF research at Morningstar, the average U.S. investor’s exposure to Russia through a mutual fund or retirement account is extremely low.

“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,” Johnson said. “Russia barely registers.”

Hundreds of U.S., European, and Japanese companies have left the country; there have been bank runs and panic buying of staples like sugar; and the ruble has lost value.

Foreign shareholders will not be able to sell shares under the restrictions, which are intended to counter Western sanctions against Russia’s weakening financial system and currency.

According to a central bank announcement, 33 of the 50 companies included in MOEX, the country’s benchmark index, will allow trading, including air carrier Aeroflot, state-owned gas producer Gazprom, and oil company Rosneft.

Moscow stocks last traded on Feb. 25. After Russian forces invaded Ukraine, the MOEX dropped 33% a day earlier.

Considering the current restraints, it may be difficult to gauge investor sentiment. Short-selling, in which investors bet that stock prices will drop, is banned in the country.

According to the World Federation of Exchanges, Moscow’s stock exchange had a market capitalization of about $773 billion at the end of last year. It is dwarfed by the New York Stock Exchange, where all equities are worth roughly $28 trillion.

The Russian central bank took nearly a month to relaunch trading in ruble-denominated local government bonds.

As of late 2021, the central bank estimates that roughly 7.7 trillion rubles, equivalent to roughly $79 billion, of Russian stock was owned by retail investors.

Russia’s government may intervene in order to support its investors. The country’s prime minister Mikhail Mishustin announced March 1 that the country’s National Wealth Fund would purchase up to 1 trillion rubles ($10.2 billion) in Russian shares by year’s end.

Before the war, foreign investors showed growing interest in Russian stocks as an emerging market opportunity. Within a week of the war, Russia was dropped from emerging markets indexes compiled by MSCI, a division of Morgan Stanley.

MCSI said that following consultation with a large number of asset managers, the Russian stock market was deemed “uninvestable.” This took away a primary incentive for fund managers to invest there.

The London Stock Exchange suspended trading in shares of 27 companies linked to Russia on March 3, including some of the biggest in the energy and finance industries. The shares had lost most of their value prior to the suspension. Rosneft’s shares plunged from $7.91 on Feb. 16 to 60 cents on March 2, while Sberbank’s shares fell from $14.90 to 5 cents during the same period.

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