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Key takeaways

  • The Russian stock market tanked after Russia’s invasion of Ukraine. It has seen its largest subsequent dip after Ukraine successfully went on the offensive, driving Putin to instate an unpopular draft of Russian soldiers.
  • Divestments in the Russian economy and sanctions by Western countries have impeded the Russian stock market throughout the crisis.
  • Even when Russian gas and oil companies have seen minor successes, these have not been enough to bring the MOEX Russia Index up to pre-invasion levels.

The Russian stock market has not fared well since the invasion of Ukraine. While this downward tumble was entirely predictable, it may be a sacrifice Putin is willing to endure in order to reach his long-term goals.

MOEX tanks leading up to invasion of Ukraine

Between Feb. 14 – 23, 2022, Russia started bulking up its forces along the Ukrainian border. That week, U.S. President Biden issued an executive order halting imports, exports and investments between the U.S. and Russia. That same week, the European Union placed sanctions and travel bans on five Russian individuals.

Western treasuries took action too. On Feb. 22, 2022, the U.S. and United Kingdom placed sanctions and froze assets of major Russian banks. That same day, Germany backed out of an $11 billion deal to build a pipeline between Russia and Germany.

On February 23, the EU took further measures to ban Russian imports from certain regions and prohibited certain European exports to Russia. It also placed restrictions on trades, investments and Russian access to EU financial markets. Further sanctions on Russian individuals were also put into place.

The same day, Australia created restrictions disallowing its citizens from interacting with Russian banks. It also placed sanctions and travel bans on several Russian individuals. Japan followed suit with travel, trade and banking restrictions on February 24 – the day of the official invasion.

The MOEX Russia Index fell most dramatically in the lead up to the actual invasion, as Putin was lining up troops along the border. From February 16 – 24, the index took its most dramatic nose dive from 3,683.95 down to 2,058.12. It hasn’t gone back above 2,787.69 since.

The ensuing week saw further sanctions from Western nations. These sanctions blocked trade, perhaps most importantly with Russia’s oil and gas exports. Investments were frozen. Airspace was closed.

Russia’s actions even merited a plea from its ally India to help Indian nationals evacuate the region safely – although President Modi would not go so far as to condemn Putin’s actions.

A slight uptick amid peace talks before falling again

In late March, there were talks of potential ceasefire agreements brokered between the two nations in Istanbul. The MOEX rose to its highest point since the invasion began as nations tentatively hoped they could negotiate a meaningful peace agreement.

But no such thing happened. While Ukraine offered neutrality in exchange for extended talks over Crimea, Russia balked at any type of ceasefire. Instead, it only agreed to scale down military operations — a hollow promise.

The MOEX started tumbling again with revelations of war crimes committed by the Russian military on April 4, 2022. New and ever-increasing sanctions have been imposed on Russia from this point forward.

Marginal end-of-summer rally with announcement of dividend payments

The MOEX continued to bumble along throughout the summer as Russia continued its attacks and faced further sanctions. The Ukrainian people held off these attacks more powerfully than anyone could have predicted, though they still sustained great losses, making it clear that absolutely no one was actually winning the war.

In late August, Russian oil company Lukoil started performing better, as did gas giant Gazprom with an announcement that it would start paying out dividends to its investors. This helped the MOEX rally a bit all the way up to 2,488.44 on Sept. 5, 2022, though not nearly to its March 2022 post-invasion high of 2,787.69.

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The MOEX reaches new lows with Ukrainian offensive

Ukrainian President Volodymyr Zelensky knew that winter was coming, and that if his people had a chance of sustaining themselves through the colder months, they’d need to log a major win in order to secure further military and financial support from allies abroad. Individual investors are also looking to support Ukraine.

This was doubly important not only because he needed to sustain his own people and continue asserting his country’s sovereignty, but also because sanctions on Russian gas would be much less politically popular for EU leaders in the winter months compared to how they have been received over the summer.

So in early September, he leveraged recent aid packages received from the U.S. and EU countries to launch the first major offensive strike by Ukrainian forces. By almost all accounts, he was successful. The strike led to a reported collapse of the Russian northeastern front in the Kharkiv region.

Russia has sustained serious losses, which sparked Putin to instate a draft of 300,000 men with “specialized military experience.” All Russian men are technically required to fulfill military service at a young age, which means most of them have a history with the military. Some get out of it through medical excuses or bribery.

Even those with no military service are currently being conscripted, despite Putin’s initial insistence that only those with relevant military history would be called to serve.

The move has sparked protests and a mass exodus from the region. One Russian man lit himself on fire, another shot a military recruiter and many have fled to neutral Turkey.

In the days that followed the Russian retreat and ensuing draft, the MOEX has fallen even further, past its previous February low down to 1,993.35 as of Sept. 27, 2022.

Putin’s long game

To understand why Putin is willingly putting his country’s economic well-being through this chaos, one needs to understand his history and intended legacy.

Putin was a young KGB officer when the Berlin Wall fell and the USSR dissolved. He has since expressed that this event was a national humiliation, and has worked in the time since to reframe Russian history as a source of pride.

Actions he has taken as President, such as the annexation of Crimea, have been described as an extension of his effort to correct what appears to have been a traumatic experience for Putin in Germany all those years ago. It is reasonable to view this latest push as an attempt to establish his legacy as the man who restores Russia to its former glory under a new hierarchy.

While Russia has violently annexed other regions throughout the years, including Chechnya in the 1990s, Putin started this most recent push in 2014 with disinformation campaigns in Crimea, annexing the region with surprisingly little resistance from the West. He then used similar disinformation campaigns to create political chaos in countries like the United States.

He views his opposition as weakened and is using this moment to try to seize back the breadbasket of Europe – Ukraine. If he can reestablish dominance over the region, it could be of long-term benefit to Russia’s economy and open the door to seize other sovereign nations to bring them back under Russian rule.

Ukraine is fighting back valiantly, though, and with continued support from its Western allies, they could thwart Putin’s plans entirely. Whether or not Putin’s gamble with his own country’s financial well-being pays off remains to be seen.

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