Lessons for Russia From Long Stock Market Shutdowns: QuickTake

1. When will Russia’s stock market resume trading?

We don’t know. So far, the central bank has extended the closures on a day-by-day basis, without setting a firm target for reopening. Cut off from the rest of the financial world by sanctions, Russia may prefer to keep the exchange shuttered. The central bank is reportedly mulling ways to restart, but some market watchers say it’s wise to keep it out of action until there’s some kind of resolution to the conflict, or at least sufficient stimulus available to pump up stock prices. Meanwhile, the Bank of Russia has introduced capital controls and banned foreigners from selling securities locally, effectively shutting down the exits for investors.

2. What’s expected when it does?

In short, a nosedive. Even after the rout that triggered the shutdown, analysts estimate anywhere from 20% to 50% of the gauge’s value could still be erased when trading reopens. The 90%-plus wipeouts seen in Russian shares traded in London, as well as the extreme plunge in Russia-focused exchange-traded funds (ETFs), hint at the scope for further losses. After the rout, Cboe Global Markets and VanEck ETFs were halted on March 4 due to “regulatory concerns,” according to the New York Stock Exchange. The ruble, meanwhile, has collapsed 30% since the invasion on Feb. 24. When local trading of the currency resumed for the first time this week on March 9, it tumbled 13% against the dollar.

3. Can anything stem the decline?

It’s unclear what it would take, but Russia is dipping into its playbook from crises past. On March 1, the government said it would pump as much as $10 billion from the sovereign wealth fund into buying battered local stocks. But Russia’s situation differs from the global meltdown of 2008. The country is isolated from the international financial system, trade ties are fraying and international companies are fleeing. And the $10 billion is barely a drop in the bucket compared with the $650 billion valuation of the companies on the MOEX Index before the rout began on Feb. 20. Foreign holdings of Russian stocks stood at $86 billion at the end of last year, according to data from the Moscow Exchange. It’s also clear Ministry what access the central bank and Finance have to their windfall oil savings after international governments put a freeze on the central bank’s holdings abroad.

4. Has this sort of thing happened before?

Shutdowns happen, but rarely in an economy the size of Russia’s, the world’s 11th-biggest. Historical examples from World War I to the terrorist attacks of Sept. 11, 2001 to the so-called Arab Spring show that mothballing markets only delays the decline. One of the longer war-related closures occurred at the outbreak of World War I in Europe. The New York Stock Exchange shut on July 31, 1914, with officials saying that sales by European investors justified the suspension as a circuit breaker, according to a 2004 paper by William Silber in the Journal of Financial Economics. The closure, which lasted until Dec. 12, was the longest in the history of American markets, he wrote. The Dow Jones Industrial Average fell by more than 20% when trading resumed.

Here’s how other stock market shutdowns panned out this century:

• The Athens Stock Exchange shut down for five weeks in 2015 when Greece’s membership in the euro was pushed to the brink. When it reopened the main index plunged 16%; banking stocks crashed 30%.

• Egypt’s benchmark stock index slumped 8.9% when trading in March 2011 after a two-month shutdown following the protests that ended President Hosni Mubarak’s 30-year reign.

• US stock trading was halted for four days after the Sept. 11, 2001 terrorist attacks. The benchmark S&P 500 sank 5% when trading resumed.

5. What options might Russia have to stem the slide?

A few tools have been developed to take the sting out of market meltdowns:

• CIRCUIT BREAKERS: Exchanges in the US and other countries have so-called circuit breakers in place, which trigger temporary halts when there are extreme moves. They can help ease panic during a selloff, but they can also backfire.

• PRICE FLOORS: Some countries simply set daily limits for how much prices can move. Pakistan imposed price floors in 2008 for three months, preventing securities from trading below a certain level.

• MASSIVE INTERVENTION: Market participants say the simple knowledge that there’s a big buyer can provide a boost when nerves are frayed. China, for example, has a tradition of leaning on a collection of state bodies known as its “national team.”

6. Could Russia be ‘uninvestable’ for a long time?

A process of investors and analysts have characterized Russia’s market as “uninvestable” for new capital after the invasion and central bank capital controls. Quite how long foreign investors might be trapped isn’t clear, and sanctions may be in place for the long term. Whether they’ll prove as entrenched as the US penalties on Cuba — more than six decades, or those on Iran — 40 years and counting — is impossible to predict. But even if the war ends tomorrow, there’s little expectation it will be back to business as usual.

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