"Investor sentiment is close to panic." The Russian market has fallen to new lows since 2023.

After experiencing the strongest sell-off since 2022 in June, Russian stocks have resumed their decline after a brief respite.

On Monday, the Moscow Exchange Index hit its lowest level since February 2023 (2,164.81 points), having lost 2.1% on the day, 14% since the beginning of summer, and 22% since the beginning of the year. Having ended 17 consecutive weeks below its opening levels, the index has fallen to the same levels it reached during the first months of the war; according to InvesFuture analysts, about 15% of stocks on the market have hit new all-time lows.

"Investor sentiment is close to panic," notes Yaroslav Kabakov, a strategist at Finam. Along with stocks, Russian government bonds are falling: the RGBI OFZ price index has hit new annual lows, and long-term government bond yields have consolidated above 16% per annum.

"The market is under simultaneous pressure from macroeconomic and geopolitical factors," says Pavel Verevkin, Head of Market Analysis at Kit Finance. "The peacetime track has completely stalled, and investors are no longer reacting to isolated positive news—fatigue from the prolonged wait is reducing their sensitivity to positive news."

Furthermore, inflation risks are growing, and fuel problems continue, notes Dmitry Lozovoy, an analyst at Finam: on Monday, the Omsk Oil Refinery, the last major refinery not yet damaged by the airstrikes, was hit by a drone strike. Under these conditions, the market is pricing in not just the Central Bank's refusal to further cut rates, but the possibility of a policy tightening, Verevkin notes.

Gazprom shares fell 1.6% in trading, hitting a new low since 2008; VTB shares plunged 9%, breaking their all-time low. Sberbank fell 1%, Novatek and Aeroflot 2%, and Severstal 3.5%.

"The market is really bleeding," investment banker Evgeny Kogan describes the situation: margin calls have begun on VTB, X5, Inter RAO, and Surgutneftegaz shares. Kogan notes that "blue chips with decent dividend yields" are also falling.

The market is falling for two main reasons: the collapse of Urals prices to levels seen at the beginning of the year (around $40 per barrel), preceding the outbreak of the Middle East conflict, and investor expectations of a tightening of monetary policy by the Bank of Russia in the second half of this year, notes Freedom Finance analyst Natalia Milchakova: "An increase in the key rate this year, if inflation rises sharply, no longer seems an unlikely scenario."

If the Moscow Exchange Index fails to hold above 2100 points, the market faces "accelerating sell-offs, a sharp rise in panic sentiment, and a rapid decline well below 2000 points," Lozovoy predicts. There are currently no signs of a sustained reversal, so the market remains under significant pressure, he adds.

source: The Moscow Times https://archive.is/6viRK