Preparations Imminent for Labor Day Celebrations
On the last day of April, the Moscow Exchange Index (MOEX) somehow hung on above the 2900-point mark. Meanwhile, traders have been dumping the Russian stock market since the start of the week, causing a nearly 4% plunge in the index over just three days. The ongoing crisis in Ukraine and the plummeting oil prices continue to cast a dark shadow. With uncertainty swirling, many foresee a potential fall in the index beneath the 2800-point level in the near future.
On April 30, investors kept up the selling frenzy from the previous day. The Moscow Exchange Index slid to a rock-bottom 2887.83 points during the main trading session, a level not seen since April 21. However, it closed the day at 2918.47 points, down 1.3% from the day before. Over two days, the Russian stock market indicator shed nearly 4%.
Analysts interviewed by "Kommersant" attribute the recent market drop to the ongoing tense geopolitical situation.
To start the week, Russian President Vladimir Putin suggested a ceasefire in Ukraine from May 8 to 11, which received positive responses from investors. On that day, the IMOEX index reached a high of 3053 points, a peak not seen since the beginning of the month. But the reactions from Western countries and Ukraine were negative, with demands for a ceasefire lasting at least 30 days. U.S. President Donald Trump even hinted at pulling out of talks to resolve the Ukrainian crisis if the situation didn't improve diplomatically.
Investment experts at "Goi Invest" highlight that the threat of U.S. sanctions introduces risks of new significant sanctions against Russia and increased uncertainty among investors. "Uncertainty is always a factor that encourages cutting back on risky investments," they claim.
Another negative factor for the Russian market is the steep decline in oil prices.
According to data from Investing.com, on April 30, Brent crude oil prices on the spot market dropped to a new low since March 2021, slipping beneath $61 per barrel. Prices have been slipping for three consecutive days, shedding more than 8% of their value. A significant portion of the Moscow Exchange's index is composed of oil and gas sector stocks, which directly affect its performance. Furthermore, the potential increase in oil production by OPEC+ countries, a move anticipated following the organization’s next meeting on May 5, could further worsen the situation for Russian oil and gas producers, according to Roman Belikov, senior investment consultant at Gazprombank Investments.
The impact of the decrease in oil prices is amplified by the strengthening of the ruble. Currently, the off-exchange dollar rate hovers around 82 rubles/$ near a two-year low, and has fallen nearly 25% since the start of the year. "There's no usual weakening of the Russian currency that would balance out the adverse effects on exporters due to dropping commodity prices," notes Vasily Karpunin, head of analytics at Alfa-Investments.
Some experts predict the index will keep declining in the near future.
Roman Belikov suggests that if the oil price and negotiation situations persist, the IMOEX index could dip to 2800-2850 points. "The market is devoid of positivity. I anticipate the index to slide to 2750-2800 if the situation doesn't change," states Natalia Malykh, head of equity analysis at Finam.
While short-term technical recoveries could happen, the combined impact of geopolitical turmoil and oil market turmoil suggests sustained negative pressure on the MOEX in the medium term.
- Roman Belikov predicts that, given the persisting oil price situation and negotiations, the Moscow Exchange Index (MOEX) could potentially dip to a range of 2800-2850 points.
- Natalia Malykh, head of equity analysis at Finam, expects a further slide in the MOEX index, potentially down to the 2750-2800 range, if the current circumstances do not improve.
- The ongoing geopolitical turmoil and the turbulence in the oil market, as evidenced by the decreasing Brent crude oil prices, contribute to sustained negative pressure on the MOEX, significantly affecting the performance of the Russian stock market.
