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Nov 9, 2022
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Russian exchanges are adapting to the situation … in favor of China

If today’s trends are extrapolated to the near future, we can get yuanization of the economy instead of dollarization

There are two stock exchanges in Russia – in Moscow and St. Petersburg. There is trading in securities (stocks, bonds, depositary receipts), shares and shares in ETFs, currencies. For some time now, securities of foreign issuers have been admitted to Russian stock exchanges. On the St. Petersburg site, trading in foreign shares began in the fall of 2014, on the Moscow site – from August 2020. On both exchanges, the majority of foreign securities were of American origin, some of them were of European origin. On the St. Petersburg Stock Exchange, American and European shares were denominated in dollars and euros; on the Moscow Stock Exchange, the US was traded in rubles.

Although already in the past decade China (the world’s second largest economy) became Russia’s main trading partner, oddly enough, there were no securities of Chinese issuers on Russian stock exchanges. Until this year, Chinese companies were represented only indirectly on the Moscow and St. Petersburg stock exchanges. American Depositary Receipts (ADRs) of eight Chinese companies circulated on them, in particular Alibaba, Baidu, JD.com as well as PetroChina. They were available to Russian investors, like other securities listed on the US stock exchanges.

However, last year, on the sidelines of the St. Petersburg International Economic Forum, there was talk that the Moscow and St. Petersburg stock exchanges could provide Russian investors with access to trading in shares of China and Hong Kong.

After February 24, transactions with securities of issuers from unfriendly countries (most of them account for papers of American origin) were stopped or significantly limited. This also applies to the ADRs mentioned above. At the same time, the implementation of plans to ensure the access of Chinese securities to Russian stock exchanges accelerated. From June 20, the St. Petersburg Exchange began trading in shares of 12 companies with an initial listing on the Hong Kong Stock Exchange (Alibaba Group Holding Limited, Xiaomi Corporation, Tencent Holdings Limited, JD.com, Inc. and WH Group Limited etc.).

Later, the St. Petersburg Stock Exchange gave Russian investors access to another 42 Chinese issuers with primary listings on the Hong Kong Stock Exchange. This list, which exceeds fifty persons, includes issuers from both Hong Kong, which is a special administrative zone of the PRC, and from mainland China. The total market capitalization of these securities exceeds $800 billion. The Chinese financial sector and THIS IS represented by securities of corporations such as Baidu, NetEase, Hong Kong Exchanges and Clearing, AIA Group etc. Consumer sector – ANTA Sports Products, China Resources Beer, NIO etc. Real estate and utilities sector – China Abroad Land & Investments, China Resources Land, Sun hanged Kai Characteristics, Galaxy Entertainment Group etc. Other sectors – Techtronic Industries (industry), Wuxi Biologics (health), JD Logistics (logistics) and others.

The growing presence of China on Russian stock exchanges is also manifested in the fact that the share of transactions with the Chinese yuan is rapidly growing on the currency trading platforms. Until February 24, the lion’s share of all foreign exchange transactions on the Moscow Exchange accounted for the dollar / ruble currency pair; in second place was the euro/ruble pair. However, since the beginning of March, the share of these pairs began to decline – at first gradually, then more and more rapidly. They began to be replaced by operations with the yuan, primarily for the yuan/ruble pair. In late February – early March, the daily turnover of yuan / ruble transactions did not reach 1 billion rubles. At the end of July, this figure reached the level of 70 billion rubles. If in April the yuan accounted for 6% of the turnover on the stock exchange, then in August this figure rose to 20%. By the end of July, the yuan had already managed to catch up and overtake the euro currency. In August, there was a moment when the turnover with the yuan exceeded the turnover with the US dollar. True, there was some pullback later, but in October the yuan was already steadily outperforming the US dollar. Now the Chinese yuan reigns on the Moscow Exchange. It is noteworthy that in transactions within the yuan/ruble pair, the volume of purchases for yuan rubles far exceeds the sales of yuan for the same rubles. There is also a direct conversion of “toxic” currencies (US dollar and euro) into the Chinese yuan. Along the way, I note that in over-the-counter foreign exchange trading (carried out by commercial banks), the yuan has also become a very popular currency. Today, proposals are already being heard that the main indicator of the ruble exchange rate for the Central Bank of the Russian Federation should be its price not in relation to the “toxic” US dollar, but in relation to the “friendly” yuan. And the reference point for the Central Bank should be the yuan quotes of the Moscow Exchange.

It is noteworthy that the demand for the yuan remains high despite the fact that the Chinese currency shows a clear weakening. At the end of October, since the beginning of the year, the Chinese currency has lost more than 12% against the dollar and is now near the 2008 lows. On the Moscow Exchange, the yuan weakened against the ruble from 11.77 to 8.4 rubles since the beginning of the year. The fact that bidders are stocking up on Chinese currency, as they used to stock up on the US dollar and the euro, also indicates their distrust of the Russian ruble.

It is not yet clear where yuan holders prefer to accumulate and store Chinese currency. According to a recent report by Bloomberg, it is likely that the National Clearing Center (NCC), which operates under the Moscow Exchange and conducts all necessary payments and settlements of clients, has become the main vault. According to Bloomberg’s estimates, about $100 billion worth of foreign currency has accumulated in the NCC’s accounts. Until recently, the main part of the currency in the NCC’s accounts was in US dollars. In recent months, a large-scale conversion of US dollars into Chinese yuan has been carried out. Giant volumes of Chinese currency, seeking areas of application! Given the likely trend towards further weakening of the Chinese currency, it should be invested in something more reliable and preferably profitable. In China, there are very strict restrictions for foreigners to invest in their economy. And, although Beijing has stated that Russia and China are allies, no special indulgence for Russian investors from the eastern neighbor is visible.

And so the idea was born to use the excess Chinese currency inside Russia. We are talking about projects by Russian companies to issue securities denominated in yuan. became a pioneer RUSALwhich at the end of the summer went to the Moscow Exchange with bonds, the face value of which was the yuan. Following RUSAL, three more Russian companies entered the Moscow Exchange with their yuan bonds – “Polyus, Metalloinvest and Rosneft. A total of four issuers made six issues of yuan bonds with a total volume of 25.6 billion yuan.

“Pole” is the leader of Russian gold mining and the second company to issue bonds in yuan. Demand in the primary market was strong, which increased the issue volume from 4 to 4.6 billion yuan.

Metalloinvest is one of the largest mining and smelting holdings in Russia and one of the world’s leading iron ore producers. The company entered the yuan bond market with two issues. Both have a constant coupon payment – once a quarter, which is not the case with other yuan issues.

known to all”Rosneft stood out with a record issue volume of 10 billion yuan, which was increased to 15 billion yuan as part of the initial offering.

Concerning RUSALthen he spent two issues. The conditions of both issues are identical: the circulation period is five years, the volume of each is 2 billion yuan. Coupon yield at a rate of 3.9% per annum will be paid in Chinese yuan twice a year (the highest percentage among all Russian yuan bond issuers).

Here is another piece of Chinese-tinged news related to the Russian stock market. At the Ural conference of NAUFOR last month, a representative of the Moscow Exchange announced that it would soon begin trading in shares of several new exchange-traded mutual funds (BPIF) pegged to financial instruments in yuan. As part of this project, the Moscow Exchange plans to launch calculations of a new bond index in yuan. It became known that the management company “RB Capital» since October 20, the formation of an open-end mutual investment fund (OPIF) has begun «RB Capital Chinese assets”, which will include shares of Chinese companies listed on the Hong Kong Stock Exchange and stock exchanges in mainland China, available for purchase on the St. Petersburg Stock Exchange. In addition, it will include yuan-denominated bonds traded on the Moscow Exchange.

If we try to describe in the most general form the shifts taking place in the Russian stock market, we can say: there is a replacement of American securities by Chinese and American currency (dollar) by Chinese (yuan). For many years we have been fighting the dollarization of the Russian economy, and today, thank God, it is happening at a rapid pace. But if today’s trends are extrapolated to the near future, we can get a yuanization of the economy, the consequences of which can be unpleasant.

Isn’t it more correct to replace the American dollar with the Russian ruble? This is in line with the instructions of the President of the Russian Federation Vladimir Putin to restore the economic sovereignty of our state. In addition, let me remind you that Article 75 of the Constitution of the Russian Federation states: “The monetary unit in the Russian Federation is the ruble. Money emission is carried out exclusively by the Central Bank of the Russian Federation. The introduction and issue of other money in the Russian Federation is not allowed“. CNY – “other money“,”introduction» it into circulation in the Russian Federation «not allowed“.

And we must remember that since February 24 of this year, the collective West has been waging an undeclared war against Russia. Economic mobilization is required to win this war. Let me remind you that during the Second World War in Western countries, the work of stock exchanges (the most capitalist institutions) was suspended. At the very least, the work of Russian stock exchanges should also be suspended. And even more so, it is unacceptable when money is collected on domestic stock exchanges, with the help of which foreign companies are financed. It’s good at least that today the collection of money in favor of companies from “unfriendly” states has been reduced to a minimum (but not to zero). But is it right to collect money among Russian legal entities and individuals intended for companies in “friendly” China? I think it’s wrong. Every ruble, every penny of Russian savings should go for our defense and victory over the “collective West”.

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