On Tuesday, the Russian stock market experienced the largest collapse since the beginning of the pandemic — the Moscow Exchange index fell by 6.5%. Like the RTS dollar index, the indicator reached the values of January last year and only slightly rebounded the next day. The reason for the upheavals is “geopolitical tensions”: within a week, the Russian authorities met with representatives of the United States, NATO and the German Foreign Ministry. The main topic of the talks was the military escalation near the border with Ukraine. «Novaya» asked the experts what consequences Russian players in the securities market faced. place-status=»empty» alt=»» />
Photo: RIA Novosti
«Greed and Fear Index»
In early January, the Russian stock exchange was agonizingly waiting for talks between the Foreign Ministry and Western colleagues on security issues. On December 31, in a telephone conversation with Vladimir Putin, Joe Biden promised that in the event of military aggression against Ukraine, powerful economic sanctions would follow. In his response, the Russian president mentioned a possible complete break in diplomatic relations between Moscow and Washington. Against this background, analysts recommended that investors refrain from new purchases of shares and the sale of foreign currency, and also assumed, in a negative scenario, a depreciation of the ruble to 80 per dollar.
On the first day of trading in 2022, January 3, Russian stocks showed growth due to the “price positive” in the oil market: by noon, the Moscow Exchange index rose by 1.74%, to 3853 points, and the RTS dollar index — by 2.16 %, up to 1630 points. Against the backdrop of unrest in Kazakhstan, the main indicators of the Russian stock exchange on January 6 fell to 3751 and 1544 points, respectively, and the shares of Sberbank and Gazprom collapsed by 4-5%. Experts then considered that «the acute phase of the conflict has been won back.»
After a long weekend, on the morning of January 10, stock indicators slightly strengthened, and experts described the external background as neutral: the Moscow Exchange index in the morning amounted to almost 3800 points, the ruble fluctuated at 74 rubles, the euro — 84. The first important «geopolitical» meeting was scheduled for At 11:00 Moscow time, following its results, key market values began to decline.
Trading volume on the Moscow Exchange markets in 2021-2022/TradingView
January 10th. Meeting of Russia and the United States in Geneva at the level of deputy ministers. Agreed to talk
Negotiations lasted about eight hours, but did not lead to specifics. According to the State Department, Russia did not give a clear answer to the question of its readiness to de-escalate the situation on the border with Ukraine, and also did not agree to withdraw troops and weapons. Deputy head of the Russian Foreign Ministry Ryabkov later said that «there are no plans and intentions» for the alleged invasion «and cannot be,» and military exercises are planned. The United States invited Russia to “continue the dialogue.”
↓ Moscow Exchange Index: 3738.68 at the close
↓ RTS Index: 1565.31 at the close
January 12th. Meeting of the Russia-NATO Council in Brussels. Nothing is clear again
As at the previous meeting, the countries failed to reach a consensus. Representatives of the alliance said that any use of force against Ukraine «would be a serious political mistake, for which Russia would pay a high price.» The Russian delegation denied the possibility of such an outcome, and also expressed fears in connection with the «expansion of NATO in Europe» and the prospect of deploying US weapons in Ukraine. However, Russia did not rule out the restoration of the work of the NATO mission in Moscow and Russian diplomats in Brussels.
↑ Moscow Exchange Index: 3829.95 close
↑ RTS Index: 1612.8 close
< strong>January 13th. Meeting of Russia and the OSCE Permanent Council in Vienna. Everyone is disappointed
The negotiations in Vienna ended in the same way as in Geneva and Brussels: Council representatives noted the intensification of military escalation in eastern Ukraine, Russia called this phenomenon a “natural reaction” to the increase in NATO presence in the region and “its own internal affair.” Moscow was dissatisfied — according to the permanent representative of Russia to the OSCE Lukashevich, the reaction of the West «causes disappointment.» The US representative called Russia's actions «an urgent security challenge.»
↓ Moscow Exchange Index: 3674.73 at close
↓ RTS Index: 1516 .99 at the close
18 January. Visit of the German Foreign Minister to Moscow. A little better, but also nothing
The well-known Russian critic Annalena Burbock visited Moscow for the first time as a member of the new German government. Mostly the meeting was of a humanitarian nature, but during the conversation, the politician noted that she sees a threat «in 100,000 Russian soldiers on the border of Ukraine.» In response to this, Sergey Lavrov repeated the position previously voiced by Russia that increasing combat readiness is a common practice for all countries, and the contingent is located on the territory of Russia.
↓ Moscow Exchange Index: 3238.94 at close
↓ RTS Index: 1367.45 at closing
Alexander Losev
CEO of Sputnik Capital Management
“For more than a month now, the Russian market has been under pressure from large foreign sellers who are reducing risks in anticipation of a war in Ukraine. In the Western press, the geopolitical background looks more and more negative every day, which causes a reaction from both American congressmen and Europeans who threaten Russia with sanctions, blocking loans from Russian banks, and so on.
The risk management of the largest funds in such a situation is to make a decision on the liquidation of the position in Russia. Traders are instructed to «sell at any price» because the rules must be followed.
This triggers an almost chain reaction — the further the markets fall, the more the stop loss concept works, when losses reach a certain amount and further losses cannot be tolerated, then the position is liquidated by the rest. Therefore, we see a collapse of the market in huge volumes. This situation was created by the largest US investment funds and banks. According to Bloomberg, they are reducing their position in the shares of the largest Russian banks, which form the basis of the RTS index and the Moscow Exchange index.
Foreign investment funds suffered huge losses. American investors are already losing tens of billions of dollars.
Major Russian players are now buying securities, since they are cheaper than ever, and are counting on making a profit.
About the forecast for the future — the market will «fall flat» (the phase in which the value of an asset is in a relatively equilibrium condition. — Ed.), that is, a recovery trend will not form, but nevertheless, fundamentally, our market remains attractive to investors. Dividend yields for many companies reach 12–16% per annum, which is very good. Investors will consolidate positions, realizing that there will be no rapid growth. But then, when the situation normalizes, we expect a sharp rally of 50 percent upwards.
There is such a concept — index of greed and fear in the market: the less fear, the more greed, and vice versa. If we had seen the risk off game before, when fear dominated, now greed has begun to return. Our shares are becoming very attractive to investors, this has not been the case since 2020. This morning, Sberbank shares were trading at 220 rubles per share, although two months ago they were worth 380 rubles. Where can they grow if the situation along the Russia-US or Russia-NATO line normalizes?
Trading volume on the markets Moscow Exchange from 10 to 18 January 2022/TradingView
BCS Express expert Dmitry Babin noted that the Russian stock market on January 18 «lost all the achievements of the previous year.» According to the expert, the indices fell to the values of January last year, while the activity of the market players, on the contrary, broke historical records. “The negative news background that accompanies this situation scares away many investors from our market, primarily foreign ones. A large number of those who want to sell securities are met with too weak demand, which causes such sharp drops in quotations,” Babin said.
As early as January 17, the decline in stock prices accelerated despite the fact that the United States, according to unconfirmed data, abandoned the idea to disconnect Russia from the SWIFT system in the event of an invasion of Ukraine. Instead, according to Handelsblatt interlocutors, Western governments have begun to prepare for targeted sanctions against the largest Russian banks. By the middle of the day, the Moscow Exchange index fell below 3550 points, and the RTS index fell below 1500.
Strengthening the fall of the stock markets came at the end of the negotiations between Lavrov and Burbock. The five largest Russian companies collectively fell by 2.3 trillion rubles. Ordinary securities of Sberbank lost 11%, papers of Mail.ru Group and shares of Gazprom — 8.5%, shares of AFK Sistema — 6%. Rosneft and Lukoil lost 695 billion and 248 billion capitalization, respectively. The ruble also continued to weaken, and by the evening of November 18, the dollar was worth 76.97 rubles. However, by the evening of January 19, the Russian stock market showed a correction: the Moscow Exchange index rose from 3290 points in the morning to 3436 points at the close, while 3500 points at the peak.
Timur Nigmatullin
Otkritie Investments Analyst
“The main reason for the decline in the market on January 18 is geopolitics. If we assign a weighting factor, then 70% accounted for geopolitical risks that are opaque and unpleasant for market participants. Another 30 percent — on the external background: Asian and American indices fell due to the tightening of monetary policy by central banks. That is, there was more than one reason.
Long-term reasons that can lead to such a collapse have not changed in our country for many years, and periodically they become aggravated. First of all, these are geopolitical risks. Investors don't like them very much. They always calculate the value of assets with a large multiple (the ratio of the market value of a company's shares to the value of its assets. —Ed.), because the risks are opaque, they cannot be predicted in a normal way.
It is not known exactly how much investors lost, but, apparently, we encountered a large volume of margin calls
(broker's requirements for depositing additional funds or securities, if not fulfilled, part of the positions on the account may be closed . — Rev.). This is when brokerages forcefully close out positions at great losses to speculators who use disproportionately aggressive margin lending. Losses for such investors can be very large — up to 90% of the capital.
There are many inexperienced investors with small capitals on the market. According to the calculations of the Bank of Russia, there are no more than several tens of thousands of rubles in their accounts. These investors didn't see these sell-offs because they came in after 2020 and they may have suffered very serious losses. And, unfortunately, there are millions of such investors.
It is pointless to wonder how the situation can develop. The reason for the decline in the market is that risks cannot be predicted — we cannot predict the behavior of other people, the behavior of politicians, or be guided by some other decision-making factors.
The company's expert claims that a partial depreciation of the ruble due to tense Russian-Ukrainian relations has already been realized — by about 5%, when the dollar exchange rate is kept at around 76-77 rubles. According to Sofia Donets, in the event of a negative scenario with a military escalation, the dollar may rise to 85–90 rubles.