Russian Money Markets And Financial Institutions In 2014


Russian Money Markets And Financial Institutions In 2014

Alexander E. Abramov

Gaidar Institute for Economic Policy

October 31, 2015

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Russian Economy in 2014. Trends and Outlooks. (Issue 36), 2015


This paper deals with a wide scope of issues, starting with the post-crisis recovery of Russia’s financial market. The author analyzes the market for shares issued by Russian companies, investigates dependence on the global conjuncture of prices and inflow and outflow of foreign portfolio investment. He also studies currency exchange rate, looks at the competition on the domestic share market, and analyzes preliminary results of the merger of the RTS and MICEX. The article deals with the market for ruble-denominated bonds. The author provides analysis of financial market risks and looks at the development of Russia’s domestic savings system.

Russian Money Markets And Financial Institutions In 2014

Market recovery from the crisis

Comparing the two crises’ parameters in Russia

In 2014, Russia was hit by a new round of financial crisis manifesting itself in the national currency devaluation, capital flight and sagging stock market. The RTS (Russian Trading Sys-tem) Index has been moving along a W-shaped pathway since 2008, which is most typical of countries whose financial crises are associated with deep disproportions in economy, for exam-ple, in South Korea since 1989 or in the U.S. innovation marketplace since 1999. As of 31 Jan-uary 2015, the RTS Index was 30.0% below the pre-crisis peak level of May 2008 and, kept searching for new lows. In January 2009, the Index dropped to 21.8% below the 2008 peak level.

It took the RTS Index much longer to rebound from its lowest value than it did during the crisis in 1997–1998 (see Table 1). It took the RTS Index 58 months to recover from the crisis in the late 1990s. The Index, instead of recovering, has been searching for new lows for 72 months since May 2008.

The differences in depth between the ruble devaluation during the crises of 1997–1998 and 2008–2009 are responsible for different rebound dynamics of the RTS Index and the MICEX Index. The MICEX Index rebounded at a faster rate than the RTS Index after the over 5-fold depreciation of the ruble1 in 1998, because the equity shares in the MICEX Index portfolio are denominated in rubles, whereas the equity shares in the RTS Index portfolio are denominated in US dollars (see Fig. 1). The MICEX Index returned to the pre-crisis level as early as May 1999, i.e., within just eight months after it hit the “bottom” of the crisis. It took the RTS Index 58 months to recover from the lowest value during the crisis.

Russian Money Markets

In the period between 2008 and 2009, the ruble devaluated 50% (see Fig. 2). However, by April 2011, the ruble exchange rate strengthened again so that it dropped only 15.8% of the pre-crisis level. The ruble’s depreciation has resumed since May 2011. In January 2015, the US dollar exchange rate reached 61.70 rubles per US$, up 159.9% compared with that seen in May 2008. The accelerated since August 2014 devaluation of the ruble again determined vari-ous recovery rates for the MICEX and RTS indices. As of January 2015, the MICEX Index reached 85.6% of the peak level seen in 2008, while the RTS Index managed to reach as little as 30.0%.

Russian Money Markets

Long-term and short-term financial crises

The lingering downtrend in the RTS Index has already hit a record of 6.7 years against the backdrop of worldwide major short-term financial crises (the United States in 1987, 2000 and 2007, Mexico in 1994, Indonesia and Brazil in 1997) with a recovery period of 5 to 6 years (see Fig. 3). This allows the recovery process which has been lingering since 2008 in the Rus-sian stock market to be classified as downtrend with a relatively long-term recovery period.

The current crisis in Russia is still insignificant in terms of duration against the backdrop of worldwide major long-term financial crises (see Fig. 4). The duration of two most prominent W-shaped crises – the equity shares of companies in South Korea and the equity shares of NASDAQ in the United States – was 183 and 177 months, respectively. At the same time, the NASDAQ didn’t see full recovery until 2014. It took the Dow Jones Industrial Average (DJIA) 303 months to recover from the Great Depression 1929. The Japanese NIKKEI-225 is most likely to break this record in May 2015, as in January 2015 the index failed after 301 months to reach the peak level of 1989. The unexpectedly long period of recovery in the Russian stock market is largely determined by a more structural than cyclical nature of the current economic crisis in Russia.

Russian Money Markets

Russian Money Markets

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