How Russia May Try to Salvage Its Stock Market

Russia ordered a limited reopening of its stock market on March 24.


Natalie Kolesnikova/AFP/Getty Images

With a day’s notice, Russia’s central bank ordered a limited reopening of stock trading in Moscow on March 24. Limited is the operative term. 

Western investors, who own up to 80% of the Russian market’s free-float, will be prohibited from selling. If they could sell, these “persons of foreign states carrying out unfriendly actions,” as a Moscow Exchange press release describes them, are barred from transferring proceeds outside Russia. 

Russian stocks lost 80% of their value in two weeks before Western exchanges took Russia-related exchange-traded funds offline in early March. The Moscow Exchange shut down on Feb. 25, the day after Vladimir Putin’s invasion of Ukraine. 

A longer-term Russian strategy to salvage its market seems to be taking place behind the headlines. The government may cobble together a “national team” to buy equities, though it’s not ready yet. The Kremlin announced March 1 that the National Wellbeing Fund would throw up to 1 trillion rubles ($10.3 billion) into the market. 

More far-reaching is an idea to create separate domestic and offshore markets, similar to China’s A-share/Hong Kong split. This might take shape as early as next month. It could enable locals and investors from more friendly foreign states, like China and the Persian Gulf, to grab cheap shares without the welter of sanctions and restrictions surrounding the main board. 

When the market reopens, a dozen stocks with primary listings abroad will not be trading altogether. That includes most of Russia’s tech elite: dominant internet platform Yandex (YNDX); TCS Group Holding (TCS.United Kingdom), parent of online Tinkoff Bank; and e-tailer Ozon (OZON), among others. Short selling is off limits for all investors. Otherwise the free market is back. 

For now, Russian financial authorities are improvising damage control. They may have to improvise more after Putin announced Wednesday that unfriendly countries will have to pay for Russian natural gas in rubles, not dollars or euro. He gave his government a week to design the switchover. 

As with stocks, those 48 new-found enemies account for the large majority of Russia’s gas customers. Energy exports to the European Union came in over $100 billion last year. Demanding payment in rubles would violate half a century of practice going back to the Soviet era, not to mention contracts that Russian export monopolist Gazprom (GAZP. Russia) has honored in all political weathers.

“The contracts stipulate the currency of payment, mostly in euro, and this cannot be changed without negotiation between the parties,” says Jonathan Stern, who founded the Gas Research Program at the Oxford Institute for Energy Studies. 

Italy, one of Russia’s traditional supporters in Europe, is “not inclined to pay for gas in rubles,” an advisor to prime minister Mario Draghi commented.  

Gazprom’s euro and dollar earnings are vital for replenishing Russia’s own currency reserves, which have been depleted by Western nations’ freezing most of them as punishment for the Ukraine invasion. 

If seller and buyer agreed to switch to rubles, they would still have to finance the exchange in a way that did not violate sweeping sanctions on Russian banks. That would be “awkward,” Stern says.

Indeed. 

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