Russia’s stock market jumped in its first, limited trading session since the West unveiled punishing sanctions nearly a month ago, but the rally was overshadowed by government moves to prevent foreign investors from selling shares.
The benchmark MOEX index rose around 4%. Only 33 shares out of 50 on the index were allowed to trade in the shortened session. Russian energy giant Gazprom PJSC rose 13%, while its peer Lukoil PJSC rose 12%. Energy prices have surged since the last time they traded. Russian bank stocks were mixed despite being the target of sanctions. VTB Bank PJSC fell 5.5%. Sberbank Russia PJSC rose 3.9%.
The resumption of trading is unlikely to be interpreted as a sign that all is well with the Russian economy. To prevent a steep selloff, Russia’s central bank banned short selling, and blocked foreigners, who make up a huge chunk of the market, from selling their shares. The Kremlin also directed a Russian sovereign-wealth fund to buy around $10 billion in shares.
The government’s measures cloak underlying selling pressure. If foreigners could sell, they probably would. Russian shares listed in London and New York plunged after the start of the war and many have been delisted or suspended because of the sanctions.
Before the war, foreigners owned around three quarters of the freely traded shares in Russia, known as the free float, and were responsible for around half of the trading volume each day. Without them, Russian share trading provides limited information about the true value of companies.
“We don’t know what the market is saying at all,” said Charlie Robertson, global chief economist at Renaissance Capital, an emerging and frontier markets investment bank.
The reopening, while limited, is meant to showcase Russia getting back on its financial feet following sanctions aimed at isolating the economy.
It also highlighted how the war in Ukraine is being fought on two fronts, military and financial. Just as trading started early Thursday, a White House official attacked it as a “Potemkin market opening.”
“Russia has made clear they are going to pour government resources into artificially propping up the shares of companies that are trading,” Daleep Singh, the White House’s deputy national security adviser for international economics, said in a statement.
“This is not a real market and not a sustainable model—which only underscores Russia’s isolation from the global financial system,” he said.
Limiting foreigners from selling shares helps safeguard the ruble. If foreign stockholders sold their ruble-denominated shares, they would move that money into euros or dollars. This could weaken the ruble’s value just as the currency has started to stabilize in recent days.
Among the limited transactions nonresidents can make is to close short positions, the central bank said. Closing short positions requires investors to buy back the share they bet against, which can boost the share price.
With foreigners boxed out, trading was left to local investors. Some may be attracted to stocks since they are seen as a relatively safe investment in times of inflation because companies can charge customers more when their costs rise.
Individual investors have historically made up a sliver of Russia’s stock market, holding about 7% of the Russian market’s actively traded shares, according to Sberbank Investment Research. At the end of January, there were more than 17 million individual investors with brokerage accounts on the Moscow Exchange, according to the bourse.
Economists and investors tried to assess to what degree the rally was driven by investors executing new trades versus the buying activity that may have been carried over from last month. Some trades placed in late February before the market was suspended hadn’t gone through the formal process known as settlement.
Russia has yet to detail when or how foreign investors will be allowed to operate in the future. A plan under discussion would split the trading into separate markets for foreign and local investors, The Wall Street Journal previously reported, citing a person familiar with the matter. Under that plan, investors would still face restrictions from moving proceeds of sales out of Russia.
“I have a tough time imagining a scenario where anyone from the West would come back to the Russian stock market,” said Christian Kopf, a fund manager at Union Investment.
said it would drop Russian stocks from its influential indexes that track emerging markets. Before the war, MSCI’s emerging-market index had a 2.8% weighting for Russia. FTSE Russell has also announced plans to remove Russian stocks from its indexes. The moves will force investors whose holdings track the indexes to sell—when they can.
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