Moscow reopens its “Potemkin market”
The reopening of the Moscow stock exchange last week has been labelled a “Potemkin market” by US officials, says Lex in the Financial Times. There’s substance to that charge: Russia reportedly spent $10bn from its National Wealth Fund to boost share prices, helping shares rebound by 4.4% on the opening day. Investors could only trade a limited amount of stocks, foreigners couldn’t sell and short-selling was banned. Still, if inflation takes off in Russia then its Moex index may prove something of a refuge – Turkey’s inflation woes have been accompanied by a 144% rise in its Bist 100 index in local currency terms.
Interest rates are now at an eye-watering 20%, which has helped to stabilise the rouble, says Caitlin Ostroff in The Wall Street Journal. The currency is still down 17% since before the invasion, but at about 85 roubles to the dollar it has come back a lot from a record low of 151 in early March. Capital controls have made it difficult for residents and investors to sell the currency. “It is fair to say that the rouble is not a market price,” says Robin Brooks of the Institute of International Finance. “If there were a free flow in both directions, we would see a far weaker rouble.”
Crucially, since sanctions still allow Russia to sell oil and gas internationally, the country will continue to enjoy a positive balance of payments while oil prices surge. And as exports stay strong, imports are likely to fall as foreign firms pull out and technology transfer is banned, says George Pearkes of Bespoke Investment Group. Sanctions aim to “stifle” Moscow’s ability to wage war while disrupting the local economy by choking off foreign investment. “The net effect [of sanctions] is perversely quite positive for the rouble… but also do not conflate rouble strength with good economic outcomes for Russia.”