Sour Grapes at the Stock Exchange
Disappointed anticipation: Reaction of investors towards Russia-Ukraine negotiations
The Russian stock market took a nose dive on May 15, plummeting a whopping 2.9%! The MOEX index stumbled, crashing to 2823 points by midday and shedding a hefty 100 points—with more drops to come. All this took place due to investors' displeasure with the Russian delegation's makeup for the potential talks with Ukraine in Istanbul.
Vladimir Putin's Russia: A Poor Show of Power?
Alexander Vervikhin of Alor Broker, ever the analyst, explains: "Investors didn't see a glimmer of real progress in the talks reflected in the delegation composition. This classic sell-off wasn't just a minor fall, but more like a power punch to the gut for Russian investors!"
And it's not just Vervikhin voicing his opinion. Alexander Bakhtin of Gard Capital and Federico Sidirov from the School of Practical Investing concur, blaming the stock market's descent on the uninspiring delegation and the talks' alleged stagnation. Bakhtin elaborates, "This high-stakes showdown moved from a meeting between heads of state, as Ukraine and the US had initially intended, to a lower-tier affair."
Just a day before the meeting, the makeup of the Russian delegation was finally revealed. Major players included Vladimir Medinsky, assistant to the president, and Mikhail Galuzin, deputy head of the Ministry of Foreign Affairs. But it's not just diplomats gracing the Russian delegation—there are military bigwigs like Igor Kostyukov, head of the Main Operations Directorate of the General Staff of the Armed Forces of Russia, and Alexander Fomin, deputy minister of defense, present too.
But is Russia's stance just a weak attempt at masking its true intentions? Volodymyr Zelensky, Ukraine's president, supposes the Russian delegation is simply "window dressing." Funnily enough, neither Putin nor US President Donald Trump made the trip to Turkey, although Trump didn't entirely rule out attending.
Fails and Tales from the Stock Exchange
The disappointment felt by the Russian stock market participants is nothing new—it's been quite touch-and-go lately, with the MOEX index responding to every move in the peace talks. "Negotiations' news has a substantial influence over the index's performance the past month," says Sidirov. As the talks progress, the index grows, but if they stagnate, it dives.
The current situation in Turkey is no exception. With a massive 3% drop in the stock market, Russian investors are sending a clear message—they're not impressed! "It's clear as daylight that Russian investors aren't too optimistic about the talks' progress," adds Bakhtin.
What Happens Now?
What does this mean for the Russian stock market? Almost all sectors are keeping a close eye on the Russia-Ukraine talks. If the talks prove successful, they could function as a catalyst for the entire market, suggests Vervikhin.
But experts warn finding success could be a long way off. Vervikhin from Alor Broker dismisses growth scenarios in talks as unlikely and anticipates increased volatility in the market, especially in the short term. He forecasts an emotional, rollercoaster-like trading experience with a predominantly downward trend the next couple of days.
The jury is still out, but it seems that the Central Bank will offer some relief for non-military-related sectors experiencing stress. The base scenario, according to Vervikhin, estimates a Central Bank rate of around 16% by the end of 2025.
And remember, peace is the key! The success of the Russian market relies on peaceful progress, allowing for reduced risk premium in the cost of Russian assets and positively impacting inflation expectations and the Central Bank's key rate.
- Despite the Central Bank's anticipated relief for non-military sectors, Russian investors are concerned about the volatility in the market, especially in the short term, as the Russia-Ukraine talks continue to unfold.
- The recent 3% drop in the Russian stock market, following the uninspiring delegation and alleged stagnation in the talks, is a clear indication that investors are not optimistic about the progress of the negotiations.
- The performance of the MOEX index has been heavily influenced by the peace talks, with growth following progress and dives occurring during stagnation. As such, the success of the Russian stock market relies on the overall outcome of these negotiations, particularly in reducing risk premium and positively impacting inflation expectations and the Central Bank's key rate.
