Russian Stocks May Actually Be Worthless, Morgan Stanley Study Shows

Russian stocks may have “no value” compared to the prices listed on the Moscow Exchange, new research from Morgan Stanley Capital International (MSCI) showed, Elliot Smith reported for CNBC.

Photo Insert: The MOEX Russia Index is down more than 36% year-to-date.

Moscow ceased trading after stocks capitulated on the back of Russia’s invasion of Ukraine, reopening a month later after the exchange’s longest shutdown since the fall of the Soviet Union. The Moscow Exchange (MOEX) also had its recognized status revoked by many international powers.

The MOEX Russia Index is down more than 36% year-to-date as of Friday afternoon, and international investors in Russian securities have endured restrictions in managing and valuing their positions since the war began.

Based on a model that links stocks and bond markets, MSCI on Friday said the market for credit-default swaps (CDS) suggests that Russian stocks “may be essentially worthless” in contrast to the prices listed on the exchange.

CDS are derivatives that enable investors to swap their credit risk on a company, country or other entity with that of other investors.

Lenders acquire CDSs from investors under the agreement that the investor pays the lender if the borrower defaults on its debt obligations.

“The incongruity between the CDS market and the listed prices of Russian stocks may be due to a combination of technical-default fear, failure of the CDS auction mechanism, restrictions on trading CDS linked to the securities of sanctioned companies and a lower perceived value of Russian equity for CDS investors,” MSCI Senior Associate Zoltan Sass added in Friday’s report.

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