The stock market of the Moscow Stock Exchange will remain closed again today. The Russian trade disruption, which began on February 28, is the longest in the country’s modern history.
However, trading on the Moscow Stock Exchange foreign exchange and repo markets will resume. The stock market has not been conducting trades or settlements since March 5.
Before the stock close, the benchmark “IMOEX” index saw its worst weekly decline on record. While the trading halt helped limit the damage to local equities, Russian shares listed on the London Stock Exchange lost more than 90% of their value, before being suspended due to international sanctions applied to Russia. These sanctions affected everything from the country’s ability to access foreign reserves, to the SWIFT interbank messaging system.
European companies with business exposure in Russia have lost more than $100 billion in market value. While global index providers announced new plans to remove Russian stocks from their benchmarks.
Although some investors have considered that the nation cannot be recovered. Russia has promised to prop up its stock market with up to $10 billion when it reopens.
The drop in shares of Russian companies listed abroad is also an indicator of how local capital investors might react when trading on the Moscow Stock Exchange resumes. And some strategists say the index is likely to drop another 40% to 50% before state intervention picks up.
The Central Bank of Russia is struggling to sustain the country’s economy
The Central Bank of Russia has doubled interest rates, has taken shelter in gold to strengthen its finances. In addition to this, it has communicated to Western countries that they cannot abandon their investments in the country.
Russian banks have been in deep trouble after being kicked out of the SWIFT interbank messaging system. Last Wednesday the Central Bank of Russia announced that there was a growing shortage of monetary liquidity due to the wave of citizens at ATMs trying to withdraw money from banks.
Russian ruble trading is also a global issue. The Russian currency is traded 24 hours a day on the world interbank market and on the Moscow Stock Exchange.
Normally, interbank prices around the world mirror prices in Moscow trade, but Russia’s invasion of Ukraine has caused markets to diverge and trend lower. As a result, the ruble lost a third of its value in offshore trading on February 28, its biggest drop in history.
Dozens of foreign companies have ended their business operations in the country and major fund managers have frozen at least $3 billion in assets exposed to Russia.
Wednesday of last week. Russia has banned brokers from selling securities on behalf of non-Russians and has placed limits on foreigners trying to transfer money out of the country. Also, the major rating agencies have drastically lowered Russia’s credit rating.
The future of the Russian economy
Although it will be extremely difficult for the Central Bank of Russia to endure the coming weeks. The next boost for Russia could be to build on its non-renewable energy reserves. Since oil and gas continue to be the largest generator of income for the country.
In addition, the Central Bank of Russia could reach an economic agreement with China. Since the Asian country has 13.8% of Russia’s foreign exchange reserves. Because of this, China could help strengthen the ruble.
“The Russian Central Bank could try to change the reference currency from the Russian ruble to the Chinese yuan.” Explained John Breen, principal global risk analyst at the intelligence firm Sibylline.
However, since China and Russia have recently concluded a trade agreement in euros for the supply of gas for 30 years, this option may not be viable. Breen explained that Beijing’s cooperation will not be guaranteed forever. Since Western sanctions could target China due to its ties to Moscow.
Regarding the use of cryptocurrencies, Ukraine has made use of them to facilitate foreign donations. However, Russia will likely not be able to do the same, according to Ari Redbord, head of legal affairs at blockchain firm TRM Labs.
“I don’t think cryptocurrencies are a reasonable escape route to evade sanctions. Given the size of the Russian economy, I don’t think the Russian bank is capable of coming up with a viable last-minute Blockchain solution with sufficient scale.” Redbord explained.
The open nature of the Blockchain ledger will make it difficult for the Russian Government to move a large number of cryptocurrencies, as global regulators will be able to observe and sanction these movements.
