-
A strange calm seems to have settled over Russian markets. But scratch under the surface, and almost everything has changed.
-
The government is propping up the ruble and holding together Moscow's stock market, with foreign investors all but barred.
-
Iskander Lutsko, of Moscow broker ITI Capital, tells Insider what's going on in the "completely artificial" markets right now.
Almost two months after Russia's invasion of Ukraine, a strange calm appears to have descended on the country's financial markets.
Russia's ruble has now fully recovered from its dramatic crash in the days following the attack. The country's stocks remain deep in negative territory for the year, but the dramatic sell-offs seen in late February are a thing of the past.
Yet take a look under the surface, and you'll see the strong arm of the Russian state strenuously holding the markets together. The government has introduced strict capital controls that have boosted the ruble, and it has banned foreign investors from ditching domestic assets.
Iskander Lutsko is chief investment strategist at ITI Capital, a major financial broker in Russia. He's worked in financial markets for 15 years, including at Sberbank, Russia's biggest lender. He spoke to Insider this week about what's really going on in Russia's "completely artificial" markets right now.
Stocks don't reflect the 'unfortunate reality'
Moscow's Moex stock index has tumbled roughly 40% so far this year, but it has risen around 9% since bottoming in late February.
Lutsko believes its level should be considerably lower. "The Russian equity market doesn't reflect the unfortunate, true reality," he said. "Simply because non-residents are restricted from selling."
In 2021, foreigners owned about 80% of the tradable stocks on the Moscow exchange, worth about $200 billion.
"According to our estimates, at least $50 billion of equity exposure is still on funds' balances," Lutsko said. "Mostly US dedicated funds or European funds."
A recent ruling by Moscow that instructed Russian companies to revoke any share listings they have abroad could trigger a wave of selling, he said, once those so-called depositary receipts are repatriated.
"According to our estimates, there is at least 900 billion rubles [$11 billion] worth of depositary receipts abroad of Russian stocks that could be sold by local investors on Moex," he said.
A lack of foreign players in the market has caused liquidity to dry up, making it harder to buy and sell assets. Retail investors — who have "little understanding and idea how to play the market" — now dominate trading, according to the Moscow broker.