Russia’s Raddled Stock Market

Vladimir Putin hoped to double the size of the stock market. He has comprehensively failed, and there’s no obvious fix to be found.

Russia’s stock market is stuck in one of its worst stretches in decades. The MOEX index has now fallen for 17 straight weeks — the longest unbroken decline since 1997 — and is back down near the lows it hit on the day Russia invaded Ukraine in February 2022.

Four and a half years of war have brought the market full circle: a catastrophic crash, a partial recovery, and now a slide that has erased most of the gains in between. Investors who bought in at the start of the war have made almost nothing since.

The immediate trigger was a Central Bank decision last month to cut interest rates by less than markets expected, a signal that officials are worried about inflation, high state spending, and the risk of renewed sanctions on oil. High base rates ensure that deposit rates at the banks are so high that no stock market investment can compete with them, prompting even more stock sales.

But the rate decision was only the spark. There are deeper problems, including falling oil prices, a stronger ruble squeezing exporters’ revenues, fuel shortages caused by Ukrainian strikes on refineries, sanctions risk, and a broader economic slowdown. Market sentiment took a further hit when Putin dismissed the idea of meeting Ukraine’s president, underscoring how much the market now moves on geopolitics rather than fundamentals.

The Kremlin has shrugged this off, insisting the economy has a sufficient “margin of safety.” But ordinary retail investors have been burned. According to a Central Bank review, in the first quarter, private investors deposited a record 910bn rubles ($11.7bn) into brokerage accounts — the highest figure since tracking began in 2021. The share of equities in their portfolios was up 5 percentage points to 30%. It seems that people bought shares in anticipation of future dividends, anticipating the traditional dividend rally. 

That bet failed: high interest rates and weak commodity prices have squeezed corporate profits, and total dividend payouts are set to fall sharply this year. Some major companies have suspended payouts entirely, hitting their share prices hard.

Firms are increasingly directing cash toward servicing expensive debt and funding investment projects made costlier by sanctions and Ukraine’s drone attacks, rather than toward shareholders.

More Russians than ever technically hold a brokerage account — over half the working-age population — but this isn’t really a story of mass participation. The vast majority of invested wealth belongs to a small sliver of wealthy clients, many of them businesspeople who can no longer invest abroad because of sanctions, and are parking money at home out of necessity rather than confidence. Layered on top of this is a deeper trust problem: property rights have never been especially secure in Russia, and the wartime nationalization of billions of dollars in assets — some of them publicly traded — has only reinforced investors’ wariness. 

There was once a notion that isolation from the West might push Russia down the path Iran took, where sanctions and high inflation drove millions of ordinary citizens into the stock market as a way to protect their savings from inflation. That hasn’t happened.

Russian inflation, while elevated, is nowhere near Iran’s levels, and high central bank interest rates make state-backed bank deposits a far safer and more attractive option than shares in companies battered by war and sanctions. Russians who want to move or protect their money also have both legal and illegal ways to send it abroad, unlike Iranian savers who faced much stricter capital controls. 

Sanctions have hurt the market both directly and structurally. Direct sanctions on Russia’s exchange infrastructure forced a halt to trading in major foreign currencies. But the bigger blow was structural: foreign investors, who once accounted for the majority of trading activity, exited en masse after 2022, leaving a liquidity gap that retail investors have only partly filled — they simply don’t have the firepower foreign institutional money once provided.

In 2024, Putin set an ambitious goal: to double the stock market’s size relative to the economy, from one-third to two-thirds of GDP by 2030. Since then, the market’s value relative to GDP has been shrinking rather than growing, roughly halving since before the war. A senior Central Bank official has publicly called the target nearly impossible to reach through normal growth, given how hostile the investment climate has become.

Meanwhile, bank deposits keep growing as savers’ default choice, dwarfing what’s invested in the stock market by a wide margin. That actually suits the Kremlin: money sitting in bank accounts allows banks to buy up government debt, which helps cover a growing budget deficit driven heavily by war spending. In effect, the stock market’s weakness quietly channels household savings toward funding the state — and the war — rather than into productive investment.

This dynamic echoes a slogan that appeared on a downtown Moscow billboard back in 2014, during an earlier sanctions-driven downturn: “Some things are more important than the stock market.” At the time, it read as a consoling message about short-term pain. A decade later, it looks more like an accurate description of state priorities — the war has consistently mattered more to the Kremlin than market health, and the market is paying the price through stalled IPOs, capital flight and a shrinking role in the economy.

This matters well beyond the fortunes of individual investors. A dysfunctional stock market means the Russian economy has essentially one remaining source of capital: loans and state funding. That makes long-term modernization projects harder and more expensive to finance. It also means ordinary Russians have no real tools to grow their savings or participate in economic growth beyond bank deposits — deposits that, indirectly, help fund the state budget and the war effort.

All of this undercuts the Kremlin’s own stated ambitions around technological self-sufficiency and building up non-commodity industries, both of which depend on a functioning capital market.

As long as company valuations can be upended overnight by geopolitics — asset seizures, sanctions, and dividends canceled by decree — investors, foreign and domestic alike, will struggle to trust that Russian stocks are priced fairly. Rebuilding that confidence, once the war ends, will take much, much longer than it took to destroy it.

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By Alexander Kolyandr. Alexander Kolyandr  is a Non-Resident Senior Fellow at the Center for European Policy Analysis (CEPA), specializing in the Russian economy and politics. Previously, he was a journalist for the Wall Street Journal and a banker for Credit Suisse. He was born in Kharkiv, Ukraine, and lives in London. Article first time published on CEPA web page. Prepared for publication by volunteers from the Res Publica - The Center for Civil Resistance.