How can an investor not panic?
Russian Stock Market, represented by the Moscow exchange index, fell four trading sessions in a row, with 13 on 18 January 2022, — 15 And 16 January was a weekend at the stock exchange. The fall, excluding additional trading sessions, Was 13%.
RTS Index, or the dollar version of the Moscow exchange index, during the same days fell more strongly - on 15,2%. This is due to the rise in the dollar.: at the maximum 18 January it exceeded 77 R.
The rate of decline in the index is comparable to that, what happened on the stock exchanges in March 2020, When the WHO declared the Coronavirus Pandemic.
In the morning session 19 January, the Moscow Exchange index fell to 3205 points, to the level of January 2021. RTS index at the beginning of trading 19 January dropped to 1331,03 - and thus reached the level of December 2020. Then the indices partially recovered.
Why the stock market fell
Market decline linked to geopolitical tensions, which arose due to unsuccessful negotiations between Russia, United States and NATO countries on security assurances.
Negotiations between Russia and the United States were held on January 9-10 in Geneva, and 12 On January 2009, a meeting of the Russia-NATO Council was held in Brussels. Following the talks, Russian Deputy Foreign Minister Sergei Ryabkov said, that Western countries have abandoned Russian proposals for security and non-expansion of NATO. There are no grounds for new negotiations in the near future, and Russia, according to Deputy Minister, "There's nowhere left to go".
There was other negative news: The US Senate has published a draft of a new package of sanctions against the Russian public debt, banks and the leadership of Russia. These sanctions are designed in case of Russia's invasion of Ukraine, which the United States considers possible. Russian government denies plans to attack.
The project proposes to impose sanctions against at least three financial organizations from the list: Sberbank, VTB, «Gazprombank», WEB, RDIF, ICD, «Alfa-Bank», Rosselkhozbank, "Opening", «Promsvyazbank», Sovcombank, Transcapitalbank. Also, Americans may be banned from all transactions with Russian government bonds., issued after the adoption of the document, if this happens.
This news background led to, that private and institutional investors are like Russian, and foreign ones - began to actively sell shares and depositary receipts of Russian companies, to reduce the risk level of their portfolios. As a result, quotes of most securities of the Russian market fell, which could also be facilitated by the forced liquidation of positions, where the shoulder is used. Rising oil prices only partially softened the fall.
Shares and Depository Receipts Fix Price, Ozone, VK, "Renaissance Insurance" and "Cyana" updated historical lows. Shares and receipts of Polymetal, X5 Retail Group and Rosseti are at their lowest since March 2020.
Papers of the banking sector were hit hard amid fears of a possible disconnection from the international payment system SWIFT. So, ordinary shares of Sberbank for January 13-18 fell by 19%, while for the main session 18 January drop was immediately 9%. Depositary receipts of TCS Group with 13 on 18 January fell by almost 24%.
What's going on now
19 January at the beginning of the main session, the lower mark of the Moscow exchange index was 3256.6 points. At the same time, during the morning trading session, which runs until the start of the main, Moscow exchange index fell to 3205.58 points.
Then the index began to recover, and by the end of the main trades, the growth relative to the previous day amounted to 3,24%: index reached the mark 3436,82. At the maximum, the index was able to briefly exceed the mark 3500. At that moment, the growth relative to the previous day was more than 5%.
The RTS index grew by 3,45%. Stronger growth compared to the Moscow Exchange index is due to the fact, that the ruble strengthened against the dollar. In the evening 19 January the dollar fell to 76,07 R.
The Moscow Exchange Index partially recovered due to the growth of many securities, having a large weight in the index. So, shares of "Gazprom" during the main session rose by 6,2%, shares of Norilsk Nickel 6%, ordinary shares of Sberbank 5,5%, and the shares of Lukoil 5,3%.
Shares and the ruble rose, because 19 January there was no new negative news on the topic of geopolitics. Besides, Deputy Foreign Minister Sergei Ryabkov, that there is no risk of a full-scale war and that Russia is not going to take any action, threatening Ukraine. And the oil and gas sector, one of the main growth drivers 19 January, rising oil prices helped.
Growth of the Moscow exchange index, which has been achieved 19 January, largely offset the previous day's decline.
20 January Moscow exchange index continued to recover - as in the morning trading session, and at the beginning of the main. TO 11:00 index rose by 0,92% relative to the end of the previous main session and exceeded 3468 points, then decreased slightly relative to the previous day, and then grew up again.
To win back losses, caused by the negative geopolitical background in recent days, the index needs to exceed 3800 points - that is, to grow by more than 9%.
What's next
There is no unequivocal opinion among analysts about, how the situation will develop. Moscow Exchange Index may fall to 3200 or even 3100 points, Bogdan Zvarich, chief analyst at the Banki-ru portal, said in a conversation with RBC. He considers, that there are no factors, that would improve the situation.
On the other hand, Georgy Vashchenko from Freedom Finance says, that many Russian stocks are already attractive for investment on the horizon from six months: so, Sberbank dividend yield, Gazprom and VTB became double-digit. In his mind, index lows close, and the rebound will be stormy.
Probably, the situation will depend on further news about the negotiations of Russia, USA and NATO countries, possible sanctions and the situation on the borders with Ukraine. On the situation, among other things, the meeting of Russian Foreign Minister Sergei Lavrov and US Secretary of State Anthony Blinken may affect: as Kommersant writes, she is assigned to 21 January.
Besides, the Russian market will traditionally be influenced by oil prices, which are now at multi-year highs.
What should investors do
Before rushing to buy depreciated securities or sell them, fearing a further fall, remember your investment plan. Important to consider, how long do you invest, what share of shares, bonds and other assets in the portfolio you consider acceptable, in what cases you were going to rebalance the portfolio and so on.
All actions, as well as their absence, worth checking with an investment plan. This will help you avoid impulsive, rash decisions. And whatever you decide, remember to diversify, do not use leverage and look into the portfolio less often, at least if you are investing for the long term.
We also recommend reading our article “Panic again in the stock market”, dedicated to the coronavirus market decline in March 2020. Her tips are still relevant..
