The migration crisis in Belarus, heightened geopolitical tensions and a new strain of coronavirus that could prove invulnerable to vaccines have undermined foreign investors’ faith in the Russian stock market.
$160 million in a week
From November 25 to December 1, non-resident funds got rid of $160 million worth of Russian companies’ securities, and over the past two weeks, they withdrew $370 million from the market – a record amount since the pandemic began in March 2020, BCS Global Markets reported in a review, citing data from EPFR Global
Funds focused exclusively on Russia were especially diligent in selling shares: capital outflows reached $250 million in two weeks, although before that they had recorded inflows, Finanz reported.
The largest U.S. exchange traded fund investing in Russia, VanEck Russia ETF (RSX) experienced a record two-month withdrawal on December 1 ($15.6 million) and had to reduce its portfolio by the same amount.
In November, the IMOEX index lost 5.6%
, a record high for the year, while the dollar-denominated RTS fell 10.7%, something the market has not seen since the “covid shock” of Spring 2020
“The topic of Russia’s preparations for an attack on Ukraine, which was initiated by Western media citing U.S. intelligence sources, has raised the degree of geopolitical tension and caused some foreign investors to sell Russian assets,” says Mikhail Shulgin, head of global research at Otkritie Investments.
In addition, the fall of the oil market, frightened by the “Omicron” strain and expectations of further tightening of the Central Bank monetary policy, he points out: the money market puts an increase in the key rate to 9%, which puts pressure on stocks.
According to the Bank of Russia, which takes into account all foreign investors, the capital outflow from Russian equities has been continuing practically non-stop since February.
During that time, non-residents, who account for a third of the stock market’s capitalization, dumped $5 billion worth of securities, recording gains from the rally that lifted the MosExchange Index by 18% since the beginning of the year.
Funds “load” private traders
De facto the market is unloading the position of large Western funds in favor of novice investors-natural persons, according to the Central Bank
It is private traders who buy shares dumped by non-residents: from April to September they accounted for 85% of net purchases in the market.
The building of the Moscow Stock Exchange. Photo: Yandex Images
But the stock market boom that has gripped the public carries risks: hundreds of thousands of people came to the exchange when stock indices were showing a powerful rally, and any major correction and accompanying losses may come as a surprise to newcomers
“The population, as well as foreign investors, may be inclined to close positions sharply in case of negative dynamics of indices,” the Central Bank warns.
“The high share of unqualified investors in the stock market may contribute to the realization of financial stability risks in the formation of a downward trend in stock quotes on the Russian and global stock markets,” the regulator adds.