General

On the 8th, Moscow Exchange began to open some trading operations to non-resident investors in Russia-friendly countries. They can operate in the futures market, but not in the stock market yet. The form in which foreign investors can participate in the deal is limited, but at least support for Russian indices can be expected.

According to the original plan, from August 8, investors from countries outside the list of unfriendly countries will be allowed to enter the futures and stock markets, and non-resident legal persons whose ultimate beneficiaries are Russian companies and citizens should also be included. But Moscow Exchange said on Friday night that for the time being, the futures market will only be open to non-resident investors in friendly countries. Moscow Exchange stressed that "more adjustments to the trading system are required" to allow non-resident investors to enter the stock market, opening hours to be announced later.

The major change in the relevant plan is related to the Russian presidential decree on the adoption of special economic measures in the fields of finance, fuel and energy in response to unfriendly acts of certain countries and international organizations.

Some of the decree's provisions focus on fuel, energy and some other strategic industries, improving the system of transaction control systems involving non-resident investors.

The document expressly prohibits non-resident investors from unfriendly countries from transferring assets out of the country before December 31, 2022, without special permission. Overall, the ban on non-resident investors from selling securities on exchanges was one of the first capital controls Russia quickly implemented in retaliation for sanctions.

The Moscow Exchange reminded that professional market participants (banks, brokers and management companies) can register non-resident clients for access to the futures market. "In order to provide access to clients, participants are required to authenticate clients and provide additional client information when registering or modifying registration information," Moscow Exchange said in a statement.

Clearly, full access for non-resident investors from friendly countries is just around the corner. Vasily Karpnin, director of the information analysis department of "BKS Investment World", said that in the past, such investors accounted for only 1% of transactions. Although liquidity may increase in the future, its importance is still small. "The factor that Russians hold Russian securities through foreign legal entities may be more important," he said.

Liquidity should increase, but non-resident investors in friendly countries may not necessarily stay in the stock market subsequently, said Natalia Maleh, head of equity analysis at Feinum. "Demand for risky assets remains low even after repeated rate cuts. Non-resident investors may turn to FX corporate bond markets, gold or friendly country currencies after liquidation," she noted.

Karpnin believes that even if share prices fall when friendly-country investors pull out in full, the market will quickly digest this factor. He noted that this is roughly the same as the first day of trading on the Moscow Exchange after a one-month suspension.