What's up guys and welcome back to wall street millennial on this channel, we cover everything related to stocks and investing, as most of you are probably already aware. Russia's invasion of ukraine and the associated economic sanctions against moscow have been a complete disaster for the country's stock market and economy. The moscow stock market index was cut in half from its recent highs, prompting their central bank to enforce a trading halt which lasted for more than a month, while it's not unheard of for a country to halt trading. For a few days during a financial crisis, a month-long halt is almost unheard of, while the moscow exchange halted trading on february 25th.

Shares of many russian companies are traded on foreign exchanges as depository receipts. For example, the er us etf is traded on the new york stock exchange and owns shares in many of russia's largest companies. Its shares continuing trading for about a week after the moscow exchange was halted. During that period it fell by almost 70 percent.

Many observers expect the moscow index to fall by a similar amount once it finally opens on tuesday march 24th. The central bank finally gave the green light to resume trading. Surprisingly, the index did the opposite popping by 4. By the end of the day, many individual russian stocks also trade on foreign exchanges.

For example, spare bank, which is russia's largest bank, saw its share price fall by 95. After its primary listing in moscow was halted. Spare bank trades as a depository receipt on the us over the counter markets under the ticker symbol sbrcy. It was halted in the us about a week after the moscow exchange closed on its last day of trading.

It was changing cans for about 52 cents per share down 97.5 percent from the all-time highs that it reached just a few months. Prior each depository receipt is worth four ordinary shares and the exchange rate of us dollars to rubles is 102 at the time of recording this video. So the 52 cent price implies a valuation of 13.25 rubles per ordinary share on the moscow stock exchange. Spare bank's ordinary shares are now trading for, and a half rubles or roughly 10 times the price of the us over-the-counter markets less than a month ago.

If you bought the us-listed shares on their last day of trading, you would currently be sitting on a 10-bagger worth of paper gains. Does this mean that putin's fortress russia strategy was a success and he somehow figured out how to save the economy, not exactly the foreign listed depository receipts have yet to resume trading, so you would have no way to realize any of the gains you could have made On paper, at least for now, the trading on the moscow exchange is severely limited forward. Investors are not allowed to sell their shares. Additionally, the kremlin sovereign wealth fund is spending 10 billion dollars to buy stocks, helping to pump up prices on the first couple days of trading.

So while the market had a good initial reaction, this may be just smoke and mirrors in this video. We'll look at how russia is propping up the stock market and whether the strategy will be viable in the long term. Keep in mind that this video is not financial advice. The situation in russian financial markets is highly fluid, and things may have changed since recording this video.

The first question is: why did russia ban trading in the first place when they decided to invade ukraine? They knew it would almost certainly invite severe economic sanctions from the west. In anticipation, putin has spent the better part of the last decade pursuing his fortress russia strategy. The key pillar of this strategy was to build up a massive stockpile of gold and foreign currency reserves worth 650 billion dollars. The idea is that they can use these reserves to prop up the value of the ruble to offset the effects of sanctions.

However, putin underestimated the western response: the us uk eu canada, france and japan all froze russia's reserves held in their respective central banks. This account for more than half of putin's war chest with one fell swoop. The entire fortress russia strategy that putin spent years building up was rendered worthless. He was getting desperate and needed a way to prevent a complete collapse of the ruble.

According to data published by the moscow exchange 48 of equity volume, it processes is from foreign investors. Thus, it's reasonable to believe that something like half of the russian stock market is owned by foreigners. Almost immediately after russian tanks started rolling into ukraine, western companies started fire selling their stakes in russian firms. For example, bp is dumping.

Its 14 billion stake in russian oil giant rosneft at a huge loss for many big institutions. Russian stocks have become uninvestable, with the giant norwegian sovereign wealth fund dumping, its entire 3 billion worth of russian holdings likely for huge losses, msci, which is the world's largest manager of stock market indices, reclassified russian stocks from emerging market to standalone. This came after they met with large institutional investors, who almost unanimously agreed that the russian market is uninvestable, given the current situation. While this might just sound like a change in semantics, the reclassification will have massive real world implications.

There are tens, if not hundreds, of billions of dollars in etfs or other index funds tracking the msci emerging market index. They will now be automatically dumping all their russian shares as soon as possible, as is no longer part of their index. When foreigners sell their shares, they receive rubles as proceeds they'll immediately convert these rubles into their home currency. Putting tremendous selling pressure on the exchange rate a collapse in the value of the ruble would be a disaster for the russian economy, as it would increase the price of imports.

Also, many russian companies borrow in foreign currencies. If the ruble falls, these businesses would be forced into default with most of their foreign currencies frozen. Russia desperately needed a way to prevent this catastrophic wave of selling. The easiest way to do this is simply to ban foreigners from selling their shares.

It's kind of like how robin hood told you that you can sell but not buy gamestop in early 2021. One year later, it's the central bank of russia telling you that you can buy but not sell russian stocks. But this is not a long-term solution if they never allow foreigners to sell their russian investments, this would amount to a rug pull in expropriation. Nobody would ever invest in russia again and they would become economically isolated, like north korea or iran.

What they're thinking is to allow limited trading now for a few days and use a sovereign wealth fund to pump up prices. This can create the perception of market stability, calm, people down and maybe prevent a frenzied crash. The problem is with the msci removing russia from the index. A lot of the selling will happen automatically once they resume trading in full.

There's no way to stop it. If you can't ban people from selling forever. The next best thing is forcing people to buy rubles. Russia recently said they'll force so-called unfriendly nations, which include every member of the european union to pay for their russian energy imports and rubles.

In the past, these contracts were almost all denominated in either u.s dollars, euros or british pounds. Europe is still dependent on russian natural gas and will, in all likelihood remain so for at least the next couple years, they'll be forced to buy rubles, which will help to prevent a currency collapse. The eu is actively trying to diversify its energy imports away from russia. They recently signed billions of dollars worth of deals with u.s companies to increase imports of liquefied natural gas from america.

This is part of their broader plan to decrease their russian energy imports by two-thirds by the end of 2022. While many energy analysts think that these goals are optimistic, it's almost certain that europe will import far less energy from russia next year than they did last year. Energy is the lifeblood of the russian economy if their ability to export it greatly diminished it's hard to envision. Any scenario in which their currency doesn't continue to free fall, as we've seen recently with turkey's experience when an economy has fundamental problems, there's only so much you can do to prop up the currency.

The turkish government tried a variety of creative gimmicks to support their currency, including a scheme whereby they offered to guarantee the depreciation risk on citizens deposits. This was an attempt to discourage turkish citizens from selling their liras, while it caused a short-term rise in the exchange rate. The currency quickly resumed its long-term downtrend. Russia may find itself in a similar situation.

They can try to play various games to kick the can down the road, but unless they can somehow convince western nations to lift their sanctions, their economy will come under increasing pressure over the coming months and years. Alright, guys that wraps it up for this video. What do you think about the russian stock market? Do you trust the bounce that we've seen in the first couple days of trading, or do you think you will tank once they allow foreigners to sell? Let us know in the comments section below, as always. Thank you.

So much for watching and we'll see in the next one wall, street millennial signing out.