Russia’s financial markets have remained largely closed for the third straight day, marking the longest pause since 1998. The measure comes as officials try to stem the financial meltdown from extensive international sanctions.
Russia Keeps Markets Closed to Avoid Sell-Off
Russia has been keeping local equity trading closed since the start of the week after the US and its allies imposed sanctions on Russia in response to its invasion of Ukraine. Sanctions have sent the country’s assets plunging and the ruble to record lows as investors are looking for an exit.
On Monday, the ruble extended losses and fell another 30% against the dollar, making it worth less than $0.01. To shore up the currency and prevent a run on banks, Russia’s central bank sharply raised its key interest rate to 20%.
Likewise, shares of Russian companies listed on foreign exchanges have taken a hard hit. Depositary receipts of Russia’s biggest lender Sberbank slipped 93% in London on Wednesday, convincing the bank that it is time to “withdraw from the European market.” Further, Russian state-run gas giant Gazprom PJSC also slumped 97%, while Rosneft Oil Co. plunged 70% and Lukoil PJSC dipped 98%.
Leonardo Pellandini, a strategist at Bank Julius Baer, commented on the status of the Russian market, saying:
“It’s really the end of the Russian financial market we are used to. It just seems like it is becoming an uninvestable market, at least for foreigners. There are too many uncertainties.”
All of this suggests that local equities will also encounter severe sell-off when trading eventually resumes. This has pushed Russia to take some countermeasures and prepare to deploy billions from its sovereign wealth fund to buy up local stocks.
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Russia to Buy $10B Worth of Shares using National Wealth Fund
In an effort to buoy its markets, Russia aims to spend up to 1 trillion roubles ($10.3 billion) from the National Wealth Fund (NWF), a part of federal budget assets, to buy shares in Russian companies. The Finance Ministry may hire VEB.RF, a Russian state development corporation, and other financial organizations to carry out the purchases.
The country has also taken other countermeasures to diminish the effects of sanctions. Since as much as half of Russia’s international reserves have been frozen, the country has introduced capital control measures like banning Russian residents from transferring foreign currency, effectively shutting the exits for investors.
Russian Prime Minister Mikhail Mishustin said the capital control measure was necessary as Western companies were making decisions because of “political pressure.” He said:
“To enable businesses to make informed decisions, a draft presidential decree has been prepared to introduce temporary restrictions on exiting Russian assets. We expect that those who have invested in our country will be able to continue working here.”
Meanwhile, Moscow Exchange, the largest exchange group in Russia, managed to trim some of the losses on its latest trading day on Friday. Last Thursday, Moscow Exchange slumped as much as 50% as the West announced sweeping new sanctions. However, it spiked nearly 30% on Friday as investors weighed the longer-term impact of sanctions.
Do you think Russia will keep local equity trading closed for the fourth day? Let us know in the comments below.
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