March 1, 2022

Russia’s central bank shuts the country’s stock market for a 2nd day as analysts warn it is ‘uninvestable’

[Markets Insider, AP Photo]

  • Russia’s central bank ordered the stock market to close for a second day Tuesday as financial stress mounted.
  • The US and its allies have hit Russia with new, tougher sanctions in response to the war in Ukraine.
  • Analysts said Russia is becoming increasingly “uninvestable”, with assets frozen and foreign-listed companies tumbling.

Russia’s central bank closed the country’s stock exchange for a second day Tuesday as it tried to limit the carnage in financial markets following tough Western sanctions.

Strategists warned Russia is becoming increasingly “uninvestable”, with huge amounts of its assets frozen, and with global financial institutions and companies scrambling to cut ties with the country.

The Bank of Russia said Tuesday that trading on the Moscow exchange would remain closed after it cancelled trading on Monday. It said a decision on whether to start trading will be made by 9 a.m. local time Wednesday.

A ban on trading is one of a number of measures the central bank has put in place to try to limit the damage of tough new sanctions directed at the country, put in place after Russia’s invasion of Ukraine.

The US and its allies have moved to cut a group of Russia’s banks out of the SWIFT system, a crucial global payments messaging network. They’ve also pledged to try to stop the central bank from using its more than $600 billion stockpile of reserves to get around sanctions.

Gustavo Medeiros, head of research at Ashmore, said in a note to clients: “The aggressive Russian actions raise the risk of this market becoming uninvestable, due to sanctions or governance/moral reasons, for foreign investors from Western countries.”

The Bank of Russia on Monday more than doubled interest rates to 20% to try to halt the dramatic plunge to record lows in the ruble, the local currency. It also ordered brokers not to sell domestic assets on behalf of foreigners.

The moves came after the country’s stock market suffered a devastating plunge of as much as 50% in a single day the previous week.

Yet the central bank could do little to stop a raft of institutions and companies severing ties with Russia, which could ramp up the stress on the country’s economic system.

Oil giants BP and Shell have said they’ll ditch key Russian ventures, with the former potentially making a $25 billion loss by selling its almost 20% stake in oil exploration company Rosneft.

Major financial index provider MSCI said it’s considering cutting Russian assets from its benchmark indices. That would potentially slash the amount of investment in the country.

The New York Stock Exchange, Nasdaq and Germany’s Deutsche Boerse all suspended trading in certain Russian securities on Monday.

A look at the London markets, where many Russian companies are listed, gives a sense of the impact of the Ukraine conflict on Russia’s financial system.

The country’s biggest lender, Sberbank, has seen its London-listed shares fall by more than 94% since the start of the year as of Tuesday. Energy company Gazprom’s London shares were down more than 70% over the same period.

“To say that Russia’s financial markets are dislocated today is a gross understatement,” said Oliver Allen, markets economist at Capital Economics. “A resumption of normal conditions is not on the cards so long as sanctions remain in place.”

Russian bonds plunged Monday as investors assessed the severity of the sanctions, and a major dollar-denominated security halved in value. Markets are awaiting more details on how exactly the SWIFT exclusion and central bank penalties will work.

“It is not certain that the government will be able to repay foreign bond holders under the incoming sanctions,” Allen said.

By Harry Robertson

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