Russian stocks fall from pre-invasion peak as rouble recovers.

Russian stocks fall from pre-invasion peak as rouble recovers.

The Volatility in Russian Markets: Understanding the Factors at Play


The Russian stock market saw a retreat on Monday, pulling back from its highest point since the country’s troops were sent into Ukraine in February 2022. This sudden dip came after the central bank announced an emergency policy meeting for the following day, putting an end to the sharp slide in the value of the rouble. President Vladimir Putin’s economic adviser has pointed the finger at the central bank’s “soft monetary policy”, attributing the currency’s weakness to the country’s shrinking current account surplus and the demand for foreign currency surpassing its supply.

The rouble, which had weakened to its lowest level in almost 17 months, managed to regain some strength after news of the extraordinary policy meeting. Market participants now anticipate a potential hike in borrowing costs, given that the central bank had recently raised its key rate by 100 basis points to 8.5% on July 21. Analysts from BCS World of Investments have stated in a note that “Another significant increase in the key rate is likely.”

Russia has recently experienced sweeping volatility in its financial markets, and this has become the new normal for the country’s assets. On Monday, stock prices briefly reached their highest levels since the initiation of what Moscow calls a “special military operation” in Ukraine, only to retreat later. The rouble-based MOEX Russian index (.IMOEX) stood at 3,157.1 points, up by 0.1%. Sinara Investment Bank has noted that “The unstoppable and puzzling growth of the USD/RUB rate… continues to support retail investors’ interest in equities as a way to save their depreciating rouble savings.” Meanwhile, the dollar-denominated RTS index (.IRTS) rose by 0.7% to 1,008.3 points.

Yulia Goldina, a senior analyst at BCS, has claimed that geopolitical risk has taken a backseat in recent market movements. She adds, “It seems we have got used to living in these circumstances.” Goldina believes that the weakening rouble is the primary factor driving the growth of the MOEX index. With exporters comprising approximately 60% of the rouble index, the decline in the currency’s value has a direct impact on the stock market.

It is worth noting that despite a decline in the dollar-denominated price of Brent crude oil, which serves as a global benchmark for Russia’s main export, the rouble has struggled to benefit from its price. The lack of correlation between the two has left market participants perplexed. A trader at a large Russian bank expressed confusion, stating, “Everyone is ready for the inflow of revenues from expensive oil, but it seems to be hanging somewhere, and our regulators are somehow indifferent. There is nothing to rely on.”

In conclusion, the Russian market has been experiencing significant volatility, with factors such as the central bank’s policy decisions, geopolitical risk, and the weakening rouble playing crucial roles. With speculation surrounding a potential increase in borrowing costs, market participants eagerly await the outcome of the emergency policy meeting. Furthermore, the inverse correlation between the rouble and oil prices has raised questions about the dynamics at play in the Russian economy. As uncertainty persists, investors and analysts will closely monitor market developments and prepare for further market fluctuations.