Russia puts floor under stock market sell-off as trading resumes

Russian government intervention to prop up the stock market helped prevent a renewed sell-off in shares on the first day of trading following a record monthlong shutdown of the equity market.

The MOEX Russia index ended the shortened session up 4.4% on Thursday, as the country took measures including preventing foreigners from exiting local equities and banning short selling to avoid a repeat of the 33% slump seen on the first day of the Ukraine invasion. The benchmark had fallen 30% in February before the suspension of trading Feb. 28.

The Moscow Exchange said the share of individual investors in today's trading volume was 58%, with 567,000 retail traders taking part along with 121 professional participants, according to a statement on its website. The total trading volume over four hours today was 108.6 billion rubles ($1.1 billion), the bourse said. This compares with 190 billion rubles of average daily volume in January-February, according to the exchange.

"With restrictions on foreign selling and repatriation this is not a functional market in terms of efficient price discovery, given foreigners dominate the market's free float," said Hasnain Malik, a strategist at Tellimer in Dubai.

Russia, hit by unprecedented sanctions, had also said its wealth fund would step in and support the equity market with up to $10 billion when it reopens, while President Vladimir Putin on Wednesday boosted the sinking ruble by demanding local-currency payments for natural gas purchases from "unfriendly" nations.

However, local market participants, like Elbek Dalimov, head of equities trading at Moscow-based Aton, said they didn't see major trading bids today that would indicate the participation of the sovereign wealth fund or big pension funds. He said many retail traders bought Russian stocks during today's session as an inflation hedge. Foreigners, who were restricted from selling, hold more than half of the Russian stock market's free float, he said.

The Moscow Exchange resumed trading in 33 out of 50 equities listed on the benchmark on Thursday. Among the biggest advancers were gas giant Gazprom and oil company Lukoil, while Aeroflot slumped along with Mobile TeleSystems PJSC and Inter RAO UES. Other oil majors also outperformed as crude oil has surged over 20% in the past month while Russian stocks were closed.

Russia "effectively closed up a free flowing market, activity will be muted and true price discovery won't occur," said Hank Tsai, senior trader at AP Capital Investment.

Since the local market last traded on Feb. 25, the U.S. and Europe have imposed harsh penalties on Russia in response to its invasion of Ukraine — hitting everything from its ability to access foreign reserves to the SWIFT bank-messaging system.

Jakob Christensen, head of international macro and emerging market research at Danske Bank A/S, said "it's too early to say" whether the market recovery can continue. "I would be skeptical that we are not seeing significant downward price pressure in the market," he said. "I would expect that to take place, if not today, then over time, and especially as foreigners also want to exit."

The sanctioned lender VTB Bank retreated as much as 21% before paring declines to 5.5%. Sberbank trimmed earlier gains to trade 4.2% higher after its CEO Herman Gref was sanctioned by the U.K. today.

Only equities that have primary listings in Russia were active today, meaning Yandex, TCS Group Holding, Ozon Holdings and other companies with main listings abroad haven't resumed trading.

"I don't see the restrictions being lifted anytime soon. This is going to be one of the ways in which the Kremlin tries to punish Western companies or companies from hostile or unfriendly countries," Per Hammarlund, chief emerging markets strategist at SEB AB in Stockholm, said by phone. "It will take quite a while before they will be able to unload these positions, and it's going to be at bargain basement prices."

U.K.-listed Russian depository receipts erased nearly all value before suspension

Russian stocks have been excluded from global benchmarks and exchange-traded funds tracking the country's shares have been frozen, while European companies with business exposure to the country have lost more than $100 billion in market value since the war risks surged, and Russian companies' global depositary receipts slumped more than 95% before being halted.

Limited Russian stocks trading will continue with another shortened session between 9:50 a.m. and 2 p.m. Moscow time on Friday, the central bank said in a statement on its website. Short selling in 33 companies on the MOEX Russia index will continue to be banned, and the trading will also be expanded to non-benchmark equities but in a special negotiated market mode.

The White House slammed the partial resumption of Russian equities trading, calling it a "Potemkin market opening."

"Russia has made clear they are going to pour government resources into artificially propping up the shares of companies that are trading," the statement said. "This is not a real market and not a sustainable model — which only underscores Russia's isolation from the global financial system."

Still, Iskander Lutsko, chief investment strategist at ITI Capital in Moscow, said local investors could flock to Russian equities as a hedge against inflation, which has surged near levels unseen since the government's debt default in 1998.

"People have been taking the money out of deposits because they understand the considerable risks from the pickup in inflation," he said. "So it makes more sense to find alternative investments, anything that isn't within the current capital restrictions, and equity markets present a great opportunity in that sense."

Dmitry Polevoy, an analyst at Locko-Invest in Moscow, agrees that local investors could provide a boost to the market.

"Prohibiting foreigners to sell and a ban on short selling could have helped. But there is huge demand interest from locals," he said. "The rally in commodity prices plus the weak ruble, plus expectations of resilient export volumes drives this buying interest."

Others, like Piotr Matys of InTouch Capital Markets, are more skeptical that today's recovery can last.

"I wouldn't read too much from today's price action as it's still not a properly functioning market," said Mr. Matys, a foreign-exchange analyst. "Given that various measures are still in place essentially preventing market players from reducing their holdings of Russian stocks, today's price action doesn't fully reflect sentiment amongst investors."