If a friend was down – Newspaper Kommersant No. 142 (7343) dated 08/06/2022

The first week of August was marked by a “bearish” game on the Russian stock market. The Moscow Exchange Index lost 7% during these days and again approached the level of 2000 points, and the fall in quotations took place on a wide front. There were many reasons to play short – from falling oil prices and rising rates abroad to the expectation that investors from friendly countries would soon enter the market, who could start selling “frozen” securities. By the end of the month, as experts expect, volatility in the Russian market may increase.

Exchange trading on Friday, August 5, ended with a noticeable drop in share prices. The Moscow Exchange Index closed at 2054.29 points, down 2.9% from the previous day’s close. The bear game continued throughout the week, as a result, the index lost 7%. According to trading participants, the market fell on a wide front, while the largest decline at the end of the week was shown by securities “Rusala” (-13%) and “Poles” (-16%), and by the end of Friday, shares lost the most Yandex (-8.1%) and receipts VK (-6.3%) and Ozone (-4.7%).

And there were plenty of reasons for such a movement. In particular, the negative dynamics of oil quotes influenced the stock index, in which oil and gas companies occupy a significant share. According to investing.com, this week Brent oil quotes fell to their lowest levels since February – to $97 per barrel on the spot market and to $93.4 per barrel on the futures contract.

In particular, Friday’s movement in the market can be described as a risk aversion on the eve of the weekend, with uncertainty due to Taiwan and a possible scenario of “trade wars”, profit taking on a number of securities, said Mikhail Vasiliev, chief analyst at TRINFICO Management Company.

At the same time, he notes that the Russian market still looks isolated from external influences and risk factors, however, at the same time, “it is sensitive to the topic of a possible recession in the global economy and a corresponding decrease in demand for raw materials and industrial goods.” According to Natalya Milchakova, Leading Analyst at Freedom Finance Global, the market was negatively affected by the increase in interest rates in many countries, including the UK, where the Bank of England interest rate was raised immediately by 0.5 percentage points, to a record high of 1.75 %.

In addition, the weak dynamics of the market this week is largely due to the expected opening next Monday of access to the stock and futures markets of the Moscow Exchange for non-residents from friendly countries.

According to Vitaly Isakov, Investment Director of Otkritie Management Company, a number of market participants assume that the admission of non-residents from friendly countries to exchange trading “will create an additional overhang of supply, which will lead to a further decrease in quotations.” “Many analysts agree that the opportunity for non-residents to withdraw from Russian assets, in addition to the risk of a decrease in their value, also carries the infrastructural risk of freezing assets,” says Maxim Vasiliev, chief analyst at TRINFICO Management Company. In addition, Mikhail Bespalov, an analyst at KSP Capital Asset Management, notes that automatic conversion of receipts will begin in the middle of the month. The possible sale of some of the securities, which will become available to investors after the conversion, may also cause volatility in the market.

Experts also note that the sanctions factor that continues to influence quotes should not be discounted.

As Mikhail Bespalov notes, last week another reminder of this was the announcement of blocking US sanctions on the Russian steelmaker MMK, which does not exclude “a similar situation for other companies, although perhaps not on the horizon of the next month.”

However, in general, fears regarding the immediate prospects of the Russian market may turn out to be too pessimistic. As Vitaly Isakov explains, most of the freely traded shares were held by “non-residents from unfriendly countries, and they remain barred from trading.” In addition, he points out, if newly admitted participants do rush to sell shares, “it is worth remembering that a price reduction without a concomitant deterioration in expected financial results only increases the attractiveness of an asset.”

However, as Maxim Vasiliev points out, the same “external investors from friendly countries who want to buy cheap shares of Russian companies”, as well as probable fiscal measures to support metallurgists or the implementation of a new “budget rule” may turn out to be an incentive for growth in the near future. According to Natalia Milchakova, until the end of August, the Moscow Exchange index will fluctuate in the range of 1900-2400 points, and by the end of the month the market volatility may increase.

Vitaly Gaidaev