Russia Russia’s threat is costing the country: the stock market has completely collapsed in a short time and the weakening of the ruble is punishing ordinary people

The Moscow stock market, which usually focuses on raw materials, is rising and falling hand in hand with the price of oil, but recently this connection has been broken. According to economists, it talks about the political risk associated with the market.

Moscow the beginning of the stock market has been gloomy.

The stock exchange’s Moex index has packed more than 18.5 percent since the beginning of the year. For comparison: The general index of the Helsinki Stock Exchange has weakened by more than 11 percent.

According to the information service Refinitiv, the value of the Moex index at the end of Tuesday was 15.25 trillion rubles, or about 167 billion euros.

From its peak in October, the index has melted by almost 30 percent. This would mean that nearly $ 50 billion would have been wiped out of the Moscow Stock Exchange since October.

At the same time, the price of oil has risen by 20 percent.

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“In general, the development of the Moscow Stock Exchange and the price of oil go hand in hand. Now this connection has been broken and it says that something special has happened. Investors have become more cautious and are withdrawing from the market, ”says a senior economist at the Bank of Finland. Heli Simola.

Still, the stock market has not yet seen similar bases as in 2014 after the occupation of Crimea.

Moscow The stock exchange consists mainly of energy companies, ie oil and gas companies, which account for about 40 percent, as well as companies in the financial sector and companies in the metal and mining industries.

Measured by trading volumes or the value of listed companies, the Moscow Stock Exchange lags far behind the world’s largest trading venues. Valuation levels of Russian companies are significantly lower than those of Western comparisons, and the gap has only widened during the crisis in Ukraine.

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It is very difficult for investors to be involved in such an uncertain market, says Aktia’s portfolio manager Patrik Moring.

“Foreign investors are pretty much pushed out of the Russian stock market,” Moring says.

The number of foreign investors on the Russian stock exchange is difficult to estimate. The market value of the stock exchange has come down in a year, but the market share of private investors has almost doubled during that time.

“Yes, that means money from bigger or institutional investors has gone out to a significant degree,” Moring says.

Ruble has weakened significantly against the dollar.

It benefits oil and gas companies that trade in dollars. So the rich get richer.

“The wealthier local people are also moving their funds to safety from Russia to the West,” Moring says.

Ordinary people, on the other hand, become impoverished as their purchasing power weakens as the price of imported goods becomes more expensive.

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In Russia, inflation was 8.7 per cent in January and the central bank raised the key interest rate to 9.5 per cent in February. However, income development in Russia has been modest, Simola says.

However, the rise in interest rates has not had a positive effect on the value of the ruble, which indicates political risk, Moring says.

In addition, households that have invested in the Russian stock market are losing their wealth.

Overall, Russia’s actions in Ukraine and international politics will be very costly for its own market and, in the longer term, for Russian households, Simola estimates.

“It remains to be seen how big that decline will eventually grow,” Simola says.

Correction 23.2.2022 at 18.13: Corrected to Heli Simola’s senior economist at the Bank of Finland. In the story, he was previously called a senior economist at the Bank of Finland.

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