Russia moves to halt stock market selloff as trading resumes

Russian equities gained as the sanctioned nation stepped in to halt the selloff in its stock market with a flurry of support measures as equities partially reopened after the record long shutdown following its invasion of Ukraine.

The MOEX Russia Index added 9% by 10:52 a.m. local time, paring its 29% slump for the year. The benchmark advanced as much as 12% earlier today. The Moscow Exchange resumed trading in 33 Russian equities out of 50 listed on the benchmark, including in some of the biggest companies, for a shortened four-hour session.

To shield the assets from the impact of sweeping international sanctions, Russia has banned short selling in these shares, adding to an earlier restriction on foreigners exiting local equities. It has also said its wealth fund will step in and prop up the equity market with up to $10 billion when it reopens. President Vladimir Putin on Wednesday propped up the sinking ruble by demanding local-currency payments for natural gas purchases from “unfriendly” nations.

“Foreign investors are not able to sell their holdings and secondly, the welfare fund in Russia is also supposed to step in and stabilize the market. Those those two things are limiting the downside at the moment,” Jakob Christensen, head of international macro and emerging market research at Danske Bank A/S, said by phone.

Christensen said “it’s too early to say” whether the market recovery can continue. “Fundamentally, the prices will be hit, of course, and therefore, I would be skeptical 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.”

Among the biggest advancers today were oil company Lukoil PJSC and gas giant Gazprom PJSC, while Aeroflot PJSC slumped. Other oil majors also outperformed. The sanctioned VTB Bank PJSC fluctuated.

“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 one fundamental factor that has improved during the stock market’s suspension is the partial recovery in the currency as Russia tries to shift oil and gas trade to rubles.”

Since the local market last traded on Feb. 25, the U.S. 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.

Only equities that have primary listings in Russia are active today, meaning Yandex NV, TCS Group Holding Plc, Ozon Holdings Plc and other companies with main listings abroad haven’t resumed trading.

‘A recovery in the market’

Iskander Lutsko, chief investment strategist at ITI Capital in Moscow, said the government support measures would limit selling pressure and allow for a recovery in stocks. “For now, we should see, strangely enough, a recovery in the market,” Lutsko said.

“New money will be looking for opportunities to buy Russia’s oversold equities, so overall we might end up in a net positive situation rather than a net negative until non-residents will be allowed to sell their remaining stakes.”

On the day of Russia’s invasion of Ukraine on Feb. 24, the benchmark MOEX Russia Index slumped as much as 45%, the fifth-worst plunge in equity market history. Foreigners have 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 $100 billion in market value since the war risks surged, and Russian companies’ global depositary receipts slumped more than 95% before being halted.

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, Lutsko 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 is not within the current capital restrictions, and equity markets present a great opportunity in that sense.”