Securities will start trading on the Moscow Stock Exchange on Monday. This will happen for the first time since February 25, when the floor was closed due to the Russian invasion of Ukraine and its economic and sanctioning effects. Russia’s central bank governor Elvira Nabiullin announced the decision to open the stock exchange in a statement yesterday after the bank’s management meeting. The almost monthly closing of the stock exchange anywhere in the world is quite unique. For example, the New York Stock Exchange was closed for less than a week after the 9/11 attacks, which took place just a short distance from it.
In addition, according to Nabiullin, the opening of the Moscow Stock Exchange will take place gradually. Russian government bonds will start trading on Monday. The governor stated that these bonds will be purchased by the central bank as part of stabilization measures. The central bank obviously fears a sharp rise in interest rates on Russian government bonds, which may occur after the stock exchange opens, which will push it down with its purchases. As Russia’s financial markets stabilize, the central bank will resell all the bonds it has bought in order to neutralize the impact of the purchases on the country’s monetary policy, the governor added.
As a result of the war in Ukraine and related sanctions, the bonds of both the Russian government and Russian companies are under considerable pressure. Yesterday, the Russian government averted the risk of insolvency on its foreign currency liabilities, the first since 1918, just after Vladimir Ilyich Lenin and the Bolsheviks came to power and stopped paying tsarist debt.
However, Russia repaid a debt of $ 117 million this week with a certain delay, which exacerbates the parties’ uncertainty about the repayment of further liabilities in the near future, and especially in the period below May 25 this year. After May 25, the US sanctions exemption will no longer apply, which still allows international financial intermediaries to process payments related to Russian bonds. Uncertainty regarding bonds, resp. their issuer and its ability to repay, generally increases interest rates on bonds as their riskiness increases.
In general, after the opening of the Moscow Stock Exchange, not only a fall in traded bonds is expected, which is accompanied by an increase in their interest rates, but especially a fall in shares. Shares of Russian companies may fall by up to 50 percent on average. Some Russian titles were traded on so-called dual quotations after February 25 this year, on stock exchanges outside Russia, such as London. On the London Stock Exchange, Russian stocks there lost almost one hundred percent of their market value in the days after the invasion, so trading in them was suspended.
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