The stock market decline of the first months of 2008 seemed to many experts to portend nothing bad. The stock market in the West and in Russia soon continued to grow, until the trend reversed in the summer.
The MICEX index collapsed from almost 1,910 in May 2008 to about 560 in November of that year. In 2016, it returned to its pre-crisis level after a difficult period of recovery during 2009-2014. In February 2021, the index rose above the level of 3400, and it was possible to consider it a great success in a decade, if you forget about the numerous devaluations of the ruble.
The RTS Index gives its own picture, which differs from the described dynamics of the Moscow Exchange. It’s not so pretty here. The index had a peak in May 2008, then approaching 2488. Its value at the beginning of March 2021 was about 1450. The fall in the spring of 2020 was very noticeable, if you evaluate it according to the RTS schedule. It even pushed the index back to a dramatic point of 2016. Then the Second wave of the crisis reached its climax. 2020 has brought the Third wave of global instability. But since the end of 2020, the index has started to recover.
The Russian economy has passed the crisis situation in 2020 better than many others. This fact was recently recognized and presented by the experts of the HSE Development Center Institute. It would be good if they also noted the methodological wrongness of the neoliberal approach to the economy, which has prevailed in our country for many decades. This approach cost too much to our economy and stock market. The real estate market paid a lot for it, especially in the capital, where $100 thousand of investments before 2014 became $50 thousand after. That’s what prompted the rejection from orthodox neoliberalism in the economy: instead of deregulation, there is the development of regulation, instead of unlimited freedom to import foreign products, support for national production and export of own goods is increased.
A new approach — this is what should be recognized as the basis for a good passage of the crisis situation in 2020. It did not come out of nowhere but began to form in the difficult conditions of 2014-2016.
The data shows that the world economy in 2020 fell by an average of 3.5%, while Russia’s GDP decreased by 3.1%. It is worth recognizing the indicative tendency of the economy to recover, which appeared clearly in the second half of 2020. The reason for this tendency is the production basis of the economy, which was strengthened by the illiberal policy of import substitution and the development of the agricultural sector, as well as the expansion of the line of exported products.
However, the question remains: is such a course able to ensure the rise of the Russian stock market? After all, in addition to the relatively good passage recorded by observers, there is also the fact of two devaluations of the ruble, and the second (in the fall of 2020) occurred in the wake of rising oil prices. It is impossible not to take into account the impact of the reduction of the key rate of the Central Bank of the Russian Federation, as this measure contributed to the outflow of capital from Russia. Thus, foreign players exited first from domestic bonds, and then from the Russian market. But they were not the only ones who moved from the market to the offshores. Net capital outflow from Russia, according to the Central Bank, amounted to $47.8 billion in 2020. A year earlier, the figure was $ 22.1 billion. Growth of 2.2 times.
The circumstances of 2020 cannot be called favorable for the Russian stock market, nor were they favorable for the economy. Signs of recovery were mixed with signs of depression after the global meltdown. The year 2021 brought an acceleration in the growth of world prices for oil, grain and many other goods. The improvement in the global price environment has only just begun, and it will affect the Russian stock market. Even if the Central Bank will have to lower the key rate a little more to encourage real estate sales and capital investment in in the real sector, the Russian stock market will become more attractive. But there is a serious problem — the bad behavior of the ruble when economic circumstances improve.
The ruble allowed itself in the second half of 2020 something that it has never allowed before. It fell on the rising price of oil. It fell against the weakening dollar instead of rising on rising commodities. This happened not according to the law of economics, but according to the law of the speculative game of financiers against the Russian currency, which was not stopped by the regulator. The fall was only stopped by intervention from the very top, as it threatened to take on a morally disastrous appearance. The dollar did not face the price of 80 rubles. A further increase in world oil prices slightly strengthened the Russian currency.
At the beginning of 2021, oil surpassed its level of the beginning of 2020 by $8 ($62 per barrel), but the ruble did not return to its previous level against the dollar. And the dollar according to formal “kickback” logic should now cost no more than 61-62 rubles, considering the old dollar — which existed before all the grandiose cash injections of the past year in the United States. In other words, the ruble remained very weak in January-February 2021. But the Ministry of Finance actively bought up the currency in accordance with the budget rule. Perhaps a reduction in this energy can help the ruble to strengthen, and then become more attractive to the Russian stock market.
Strengthening of the ruble can be expected: this is predicted and expected by economists. It is economically logical. However, the experience of the second half of 2020 shows that the process may require regulatory assistance, as there are different political interests in the ruble-dollar direction. Restrictions on the withdrawal of capital could help here, as well as a decrease in the activity of buying dollars from government agencies. Otherwise, the fight against this currency seems strangely focused more on its strengthening than on its weakening.
Support for the US financial system was part of the international anti-crisis agenda in 2008-2013. But it is no longer relevant. Nevertheless, the controversy about the collapse of the American stock market is relevant. Numerous analysts declared in one voice in recent years that the US securities market is overvalued. The reproach also applies to the stock markets of England, the EU and Japan.
But the conclusion from this statement (bitter because of the growth on the US stock exchange after a period of decline in 2020) does not necessarily have to be the inevitability of a market crash. The recession in late February — early March 2021 looks alarming, but everything will depend not on economic laws, but on the generosity of monetary injections from the Fed and the government. The Bank of England and the ECB will have to make its contribution too. The laws of economics have long been violated by the Fed in the company of other Western regulators. Probably, taught by the bitter experience of 2020, regulators will not dare to give them freedom. After all, it was the lack of cash injections into the financial sector from Western central banks and authorities that led to the stock market crash last year.
The weakening of the dollar and other old reserve currencies – such should be the alternative consequences of the described policy. The rise in world oil and food prices has already expressed this process, which began not yesterday. Further inflation of dollar assets is inevitable, while the relative value of tangible products will increase. These factors will raise the price of securities of Russian companies, that is, pull up the stock market.
By Vasily Koltashov,Head of the Center for Political and Economic Research of the Institute of the New Society