Russia puts floor under stock market sell-off as trading resumes

After month-long shutdown, MOEX Russia Index ends shortened 4-hour session up 4.4% on Mar 24

Dubai

RUSSIAN government intervention to prop up the stock market helped prevent a renewed sell-off in shares on the first day of trading following a record month-long shutdown of the equity market.

The MOEX Russia Index ended the shortened session up 4.4 per cent on Thursday (Mar 24), as the sanctioned nation took measures including preventing foreigners from exiting local equities and banning short-selling to avoid a repeat of the 33 per cent slump seen on the first day of the Ukraine invasion.

The benchmark had fallen 30 per cent in February before the suspension of trading from Feb 28.

Russia had also said its wealth fund would step in and support the equity market with up to US$10 billion when it reopens, while President Vladimir Putin on Wednesday boosted the sinking rouble by demanding local-currency payments for natural gas purchases from "unfriendly" nations.

"With restrictions on foreign selling and repatriation, this is not a functional market in terms of efficient price discovery, given foreigners dominate the market's free float," said Hasnain Malik, a strategist at Tellimer in Dubai.

The Moscow Exchange resumed shortened 4-hour trading in 33 out of 50 equities listed on the benchmark on Thursday.

Among the biggest advancers were gas giant Gazprom and oil company Lukoil, while Aeroflot slumped along with Mobile TeleSystem and Inter RAO.

Other oil majors also outperformed as crude oil has surged over 20 per cent in the past month while Russian stocks were closed.

Since the local market last traded on Feb 25, the US and Europe have imposed harsh penalties on Russia in response to its invasion of Ukraine - hitting everything from its ability to access foreign reserves to the SWIFT bank-messaging system.

Jakob Christensen, head of international macro and emerging market research at Danske Bank, said "it's too early to say" whether the market recovery can continue.

"I would be sceptical that we are not seeing significant downward price pressure in the market," he said. "I would expect that to take place, if not today, then over time, and especially as foreigners also want to exit."

About 137 billion shares were traded in Moscow on Thursday, compared with an average of 73.5 billion shares per day in the 12 months before the market was closed for a month.

The sanctioned lender VTB Bank retreated as much as 21 per cent before paring declines to 5.5 per cent. Sberbank trimmed earlier gains to trade 4.2 per cent higher after its chief executive officer Herman Gref was sanctioned by the UK today.

Only equities that have primary listings in Russia were active today, meaning Yandex, TCS Group Holding, Ozon Holdings and other companies with main listings abroad have not resumed trading.

"I must caution it's not a very convincing floor at the moment, because the increase today is very much likely driven by the authorities buying stocks," Per Hammarlund, chief emerging markets strategist at SEB in Stockholm, said by phone. "I don't see the restrictions being lifted anytime soon. This is going to be one of the ways in which the Kremlin tries to punish Western companies or companies from hostile or unfriendly countries.

"It will take quite a while before they will be able to unload these positions, and it's going to be at bargain basement prices."

On the day of Russia's invasion of Ukraine on Feb 24, the benchmark MOEX Russia Index slumped as much as 45 per cent, the fifth-worst plunge in equity market history. Foreigners have since fled the assets of the world's most sanctioned nation. Russian stocks have been excluded from global benchmarks and exchange-traded funds tracking the country's shares have been frozen, while European companies with business exposure to the country have lost more than US$100 billion in market value since the war risks surged, and Russian companies' global depositary receipts slumped more than 95 per cent before being halted.

Some Russia-focused stocks listed in London also got a boost on Thursday. JPMorgan Russian Securities - a listed fund that holds Moscow-traded shares - soared as much as 79 per cent, while Russian precious metals miner Polymetal International jumped as much as 16 per cent.

The White House slammed the partial resumption of Russian equities trading, calling it 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," the statement said. "This is not a real market and not a sustainable model - which only underscores Russia's isolation from the global financial system."

Still, Iskander Lutsko, chief investment strategist at ITI Capital in Moscow, said local investors could flock to Russian equities as a hedge against inflation, which has surged near levels unseen since the government's debt default in 1998.

"People have been taking the money out of deposits, because they understand the considerable risks from the pick-up in inflation," he said. "So it makes more sense to find alternative investments, anything that isn't within the current capital restrictions, and equity markets present a great opportunity in that sense."

Dmitry Polevoy, an analyst at Locko-Invest in Moscow, agrees that local investors could provide a boost to the market.

"Prohibiting foreigners to sell and a ban on short-selling could have helped. But there is huge demand interest from locals," he said. "The rally in commodity prices, plus the weak rouble, plus expectations of resilient export volumes drives this buying interest."

Others, such as Piotr Matys of InTouch Capital Markets, are more sceptical that today's recovery can last. "I wouldn't read too much from today's price action as it's still not a properly functioning market," said Matys, a foreign-exchange analyst. "Given that various measures are still in place essentially preventing market players from reducing their holdings of Russian stocks, today's price action doesn't fully reflect sentiment among investors." BLOOMBERG

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