Oil embargo set to restrain Russian stocks recovery in 2023: Reuters Poll

MOSCOW – Russia’s stock market will claw back some of the heavy losses sustained this year in 2023, according to a Reuters poll of 12 market experts, with sanctions, geopolitical tension and an embargo on Russian oil set to hamper a significant recovery.

The Russian market crashed in February after Moscow sent tens of thousands of troops into Ukraine, triggering sweeping western sanctions. Risk aversion has soared but some fundamentals, such as a strong price of oil, Russia’s main export, have underpinned the market.

Russian stocks had been rising since mid-2020 and hit a record high in October 2021, before the sell-off erased 56 percent of the rouble-denominated market capitalisation in the first two months of 2022.

The MOEX rouble-denominated index was expected to reach 2,500 by mid-2023, up about 13.9 percent from Friday’s close of 2,195.17, according to the Nov. 14-28 Reuters poll. Forecasts were less optimistic than in the previous poll conducted in August.

“The Russian market is continuing to adapt to the sanctions environment, but at the same time the scale of potential new restrictions from Western countries already looks limited,” said Veles Capital analyst Elena Kozhukhova. “As a result, Russian companies are likely to stabilise in the coming months.”

Russia has restricted trading for foreign investors, drastically reducing external liquidity on stock markets, and domestic retail investors have become the main driving force.

Geopolitical developments hold sway over the market, but while uncertainty shrouds the outlook concerning the conflict in Ukraine, investors will soon have more clarity on the likely impact of an upcoming oil embargo and price cap.

“A very significant threat to the Russian economy in the coming year is the likely decline in revenues from oil and natural gas exports,” said Vitaly Manzhos, senior risk manager at Algo Capital.

The G7, European Union and Australia, are set to implement a price cap on seaborne exports of Russian oil on Dec. 5. Oil and gas exporters have a strong weighting in Russian stock indexes.

“For Russian oil producers, the 2023 outlook is closely linked to the effect from the EU oil embargo on Russian oil and oil products, and also the effect from the price ceiling,” said Mikhail Shulgin, head of global research at Otkritie Investment.

Forecasts for the MOEX index reading in late 2023 in the November poll varied from 2,257 to 3,700.

The dollar-based RTS index was forecast to trade at 1,299 points by mid-2023, almost 14 percent higher than Friday’s close of 1,141.07.