Moscow Exchange and RTS indices set anti-record – RealnoeVremya.com
Should we wait for a rally for the new year?
This week, the Moscow Stock Exchange index set an anti-record for the year, falling below 3,900 points on Monday. The RTS index has reached the 1,650 point mark. The day therefore ended with the fall of the Moscow Stock Exchange by 3.58% and the RTSI by 5.55%. A comparable drop in speed and scale has not been seen since April 2020. Over the following days the indices regained their losses a bit, but it is early to talk about a recovery and some rallying. on New Year’s Eve, thinks the columnist of Realnoe Vremya. , thinks Artur Safiulin, an economist with a long banking experience. According to him, there are several serious factors that stand in the way of growth. The expert proposes to resolve the situation.
What happened and what should Rosnano do here?
As one of the experts accurately noted, if the Russian stock market decides to fall, it does so with dedication. Many ask us why we do not consider Russian stocks in the comments of our review of equity portfolios that we publish. The answer is very simple: the Russian stock market is small, with insufficient liquidity, the country’s economy is under sanctions, rumors and events are causing panic among investors.
To be fair, there is no desire to watch the exchange’s staunch fall. If we return to the situation on November 22, it should be noted that all 15 blue chip companies on the Moscow Stock Exchange were at a loss. Rumors of significant problems with the debt settlement of the public company Rosnano sparked the downfall: at a meeting with creditors on November 19, it was announced the accumulation of disproportionate debt and the need to correct the company’s financial model. According to the Central Bank’s demand, the Moscow Stock Exchange has stopped the auction of all Rosnano bond issues for more than 71 billion rubles. At the end of last week, bonds have lost 20pp in price, their profitability has seriously increased (exceeded the level of increasing risk) for fear of a technical default. Auction resumed on November 22, bonds fell to 80 rubles (minus 15.79%). Why is Rosnano’s debt restructuring dangerous? This will involve reconsidering the ratings of all companies with 100% public participation. Gazprom, VEB, GTLK, Aeroflot and some other issuers in the so-called quasi-sovereign bond segment will face difficulties.
Of course, the Russian Ministry of Finance claimed that Rosnano’s debt obligations will be fully executed, they are backed by state guarantees. But that was not enough, the mass sale had started. The RGBITR government bond index has updated the minimum since April 2020 when the coronavirus pandemic facilitated panic. At the Tuesday 23 November auction, this index has plunged 7.13% since the start of the year. This is a very serious drop for federal debt obligations where income is considered risk free.
Rosnano’s problems alone failed to significantly stun the exchanges. There are a number of factors.
Foreign political conditions
Experts note that technically the Russian stock market was already ready for the correction of the so-called overbought state, which required large-scale “unloading”. In the absence of political risks, the correction scenarios could have been much milder. Since Russian stocks were bought back all fall despite global economic problems and pandemic uncertainties. Any decline in the Moscow Exchange and RTS indices was bought up by investors before any serious declines occurred.
Bloomberg’s US news offering details of Russia’s planned invasion of Ukraine from multiple sides – Crimea, Belarus – added fuel to the fire. Of course, it started to be rumored about new sanctions against Russia. Foreign investors who have started selling stocks and bonds are the most fearful in such situations. The growth in turnover of liquid blue chips to 88 billion rubles, 1.7 times more than the analogous turnover of the previous Friday, is indirect proof of what international investors have sold.
In addition, news of a successful Russian anti-satellite missile test and certification issues for the Nord Stream 2 pipeline added to the nervousness.
Instability of the oil market
In mid-November, the oil market began to lay a foundation for starting the sale of shares of Russian companies: Oil futures stopped updating their long-term highs and fell $ 8 per barrel (about 10% drop). The further decline in oil rates came due to a decision by the United States, China, Japan, South Korea, India and Britain to sell oil from the strategic reserves of countries. On the other hand, what will be spent from the reserves will have to be replenished later. The point is that there is now an attempt to balance global supply and demand. Oil prices will continue to rise with some pause.
Consequences and forecasts
The massive sell-off on the stock exchange resulted in the exchange of rubles for dollars, which had a negative impact on the ruble rate. We see it today when the exchange rate rose to 75 rubles, not to mention the exchange offices of the banks. The ruble rate hit a record low in a year and a half just in October. The stock market panic instantly caused the ruble to fall by 1.38 rubles against the dollar in one day on November 22. Moreover, since the end of October, the ruble had already weakened by 5.32 rubles, or 7.7%. It should be noted that the calm foreign policy situation is a guarantee of our national currency. The so-called country risks as they are. Therefore, we do not see strong growth in foreign direct investment in the country, just short-term speculative transactions.
In addition, we must understand that as a country specializing in commodities, we have a less stable currency against the major reserve currencies, and the weakening trend of the ruble in the long run will continue. It’s inevitable. High oil prices cannot maintain the ruble rate in the long run. For example, in September 2018, with comparable oil prices, the dollar rate was 57.7 rubles. In November 2014, with the same oil prices, the rate was 50.4 rubles. But if we look back to 2007, the rate was 25.7 rubles.
As for the further development of events in the stock market, a consolidation around the current level with above average volatility awaits us. The wave of medium-term selling of Russian stocks is not yet over. Investors should take a wait-and-see approach. The bravest can take advantage of declines and corrections to buy stocks at an attractive price. Basically our stock market has strong characteristics, and buying at current levels will perform well in 1-3 years. The pandemic and its higher incidence will change both the pace of development of the global and Russian economy. Politics is still the main factor for the Russian stock market.
The author’s opinion does not necessarily coincide with the position of the editorial board of Realnoe Vremya.