Russian Stocks Crash After Ukraine Invasion — What Happens Now?

Russia’s invasion of Ukraine has been roiling global markets. Russian stocks were the hardest hit as President Vladimir Putin ordered troops inside Ukraine. What’s next for Russian stocks after the crash and should you buy the dip in Russian stocks?

Putin invaded Ukraine after weeks of denial and hectic diplomacy by other countries. Western countries have responded with sanctions. They have imposed crippling sanctions on several Russian banks and wealthy individuals.

U.S. President Joe Biden has increased the scope of sanctions and also imposed sanctions on the export of technology, which would impact Russia’s defense production. Russia is a major defense exporter and even U.S. allies like Turkey and India buy military hardware equipment from the country.

The MOEX, which is the Russian stock market’s ruble-denominated benchmark, fell 45 percent intraday on Feb. 24. While the Russian markets managed to cover some of the losses, the MOEX still lost 33 percent on the day, which makes it one of the worst single-day crashes globally.

According to Bloomberg analysis, the crash in Russian stock markets was the fifth-worst ever. Collectively, Russian stocks lost $189 billion in a single day. To put that in perspective, the Russian GDP was just about $1.48 trillion in 2020. After Putin invaded Ukraine, the Russian stock market cap fell by over 10 percent of the GDP.

Also, the crash in Russian stock markets is the worst since the Black Monday crash of 1987 among major stock markets with a market cap of over $50 billion. The worst crash in global markets was when Argentina stocks dropped 53 percent in January 1990.

Along with the Russian stock markets, the ruble also plummeted and hit a record low against the U.S. dollar. The Russian central bank is working to maintain financial stability in the country. The central bank asked stockbrokers in the country to halt short sales citing “the current situation in the financial market and to protect the rights and legitimate interests of investors."

The Russian central bank said, “To stabilize the situation on the financial market, the Bank of Russia decided to start interventions in the foreign exchange market ... and conduct operations today to provide additional liquidity to the banking sector.”

It seems to be Russia’s “whatever it takes moment,” which is a term used by former ECB chairman Mario Draghi to protect the euro amid the debt crisis. Echoing similar sentiments, the Russian central bank said that it would use “all necessary tools” to lower the volatility.

According to Bloomberg, the MOEX’s PE multiple fell below 3x. Russian stock markets were anyways the cheapest major market globally and traded at a PE ratio of 5.4x at the beginning of the year. Putin’s adventurism has dented the multiples of Russian stocks, just like President Xi Jinping’s tech crackdown has led to depressed multiples for Chinese stock markets.

Russian stocks gained strongly on Feb. 25. However, they're cheap for a reason. With the U.S. and its allies looking at additional measures to hit the Russian economy, we could continue to see more volatility in the country. You should only venture into Russian stocks if you can bear the volatility including the possibility of losing your capital.