Russia’s economy is in a downward spiral, and the Moscow Stock Exchange’s high yields are a “complete mirage,” Yale economics researchers Jeffrey Sonnenfeld and Stephen Tian told Markets Insider.

The capitalization of the Moscow Stock Exchange has increased by 43% since the start of the invasion of Ukraine last year, which is more than double the growth of the benchmark US stock market index S&P 500.

But two Yale University researchers say those Russian stock market gains are illusory and that the success of Russian stocks this year is due to a freeze in foreign capital flows.

That is, those who invested in Russia before the start of the “special operation” could not sell their shares on the Russian stock exchange. American researchers note that this move was intended to support the Moscow Stock Exchange.

They also explain that some of the gains can be attributed to the Russian ruble, which recently depreciated to its lowest level against the dollar since the first month of the invasion.

Exchange rate connection with the Russian stock market

The depreciation of the ruble helps the Russian stock market because the country, led by Vladimir Putin, mainly produces goods that are sold in foreign currency to “friendly countries”, and the introduction of stronger foreign currencies into Russia artificially “increases” profits and “supports” the price share, says Stephen Tian.

The fact that the ruble became one of the world’s weakest currencies this year was commented on by Russian television and criticized by the Kremlin.

“Profits on the stock market [de la Moscova] reflects less real wealth creation or foreign investment/confidence in Russian markets (which is absent), but only the impact of the exchange rate,” the researcher adds.

He and Sonnefeld say that behind stock market indices that look good, Russia is actually suffering from a huge crisis of confidence in its economy, and that this is the main reason why the Russian economy will continue to suffer even after the war in Ukraine is over.

Zonnefeld pays particular attention to the outflow of foreign capital and skilled labor from Russia.

“[Capitalul] he goes to neighboring countries and shows utter contempt for Putin’s ruthless tactics, it is depleting the country of its intellectual capital. This is a destructive thing for the future of Russia,” he says.

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