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

The Russian stock market opened on Thursday for limited trading under tight restrictions for the first time since Moscow invaded Ukraine, nearly a month after prices plunged and the market was shut down as a way to insulate the Russian economy from harsh sanctions. Westerners.

Trading in a limited number of stocks, including energy giants Gazprom and Rosneft, took place under restrictions intended to prevent a repeat of the February 24 sell-off that occurred in anticipation of US and European economic sanctions.

Major restrictions on trade on Thursday underscored Russia’s economic isolation and the strain the financial system is under despite the central bank’s efforts to curb market declines. Foreigners couldn’t sell and traders were barred from short selling, or betting prices will fall, while the government has said it will spend $10bn on shares in the coming months, a move that should support prices.

Tim Ash, senior sovereign emerging markets strategist at BlueBay Asset Management, said the reopened trades were “deeply managed” and suggested that “for those Russians with some extra cash, there’s not much else to buy as a hedge against inflation and the currency collapse.

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

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

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A US official called the severely restricted market a “sham”, with only a few publicly traded shares and Russia making it clear that it would “invest government resources in artificially propping up the shares of companies they are trading”.

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

Outside of Russia, the reopening of share trading on the Moscow Stock Exchange has little impact. Its market capitalization, or the total share value of its public companies, is a fraction of that of major Western or Asian stock markets. In addition, foreigners are prohibited from selling shares under 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 Federation of Exchanges. That is dwarfed by the New York Stock Exchange, where the total value of all shares is roughly $28 trillion.

devastating toll

Still, restarting trading on the MOEX is unlikely to help most Russians, as the number of financial sanctions and reduced trade devastate the country’s economy. The Institute of International Finance, a trade group representing major financial firms, this week forecast a 15% drop in Russia’s growth this year due to the war in Ukraine and another 3% drop in 2023.

“Taken together, our projections mean that current developments are set to wipe out roughly 15 years’ worth of economic gains,” IIF said in a statement. report.

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

Analysts at Goldman Sachs expect slightly less damage to Russia’s economy, projecting a still painful 10% drop in the country’s gross domestic product. The conflict is also hurting global economic growth, with the New York-based bank lowering its forecast for global GDP this year to 3.2%.

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