Amid a surge in US sanctions against the Moscow Exchange, a noticeable trend has emerged with approximately one in every ten foreign investors deciding to exit the market. This development follows the sanctions imposed by the United States, prompting investors from countries considered “friendly” towards Russia to actively divest their holdings in Russian shares.

Data sourced from the Central Bank of the Russian Federation indicates a significant decline in assets held in non-resident accounts with Russian brokers during the second quarter of the year. These assets witnessed a reduction of 9.6%, amounting to over RUB 189 billion, which is approximately US$1.9 billion, resulting in a total of RUB 1.77 trillion, equivalent to around US$18.3 billion.

The impact of these sanctions is particularly evident in the accounts of broker clients from international offshore zones such as the Virgin Islands, Panama, Belize, and neighboring countries like Azerbaijan, Uzbekistan, and Kazakhstan. For instance, customer assets in Azerbaijan decreased by 65%, Uzbekistan by 30%, and Kazakhstan by 20%.

Historically, a similar trend was observed in the third quarter of 2022 when foreign investors reduced their interests in Russian assets due to Western sanctions and market volatility, leading to a decline to RUB 0.5 trillion, approximately US$5.1 billion. However, investments rebounded subsequently, with the Moscow Exchange index surging by 70% in the six quarters ending in March 2024, reaching 3333 points. Despite this growth, a correction began in the second quarter, resulting in a 5.5% decrease in the index to 3154 points.

The forthcoming third-quarter figures are expected to reflect the complete withdrawal of foreign broker clients, as the US Treasury extended the licenses required to engage with the Moscow Exchange until October 12. Additionally, the Moscow Exchange is set to divest from the shareholders of the Kazakhstan Stock Exchange (KASE) shortly.

The market reaction to these developments was evident when shares of the Moscow Exchange plummeted by 15% on June 13 following the imposition of US sanctions. This exodus of foreign investors underlines the growing impact of geopolitical tensions on the financial markets, raising concerns about the stability and resilience of the Moscow Exchange in the face of escalating sanctions.

In conclusion, the departure of foreign investors from the Moscow Exchange underscores the far-reaching consequences of geopolitical shifts and economic sanctions on global financial markets, highlighting the need for investors to navigate an increasingly complex and volatile investment landscape.