Russian stocks may have “no value” compared to the prices listed on the Moscow Exchange, new research from MSCI has suggested.
The MOEX Russia Index is down more than 36 percent year-to-date as of Friday afternoon, and international investors in Russian securities have endured restrictions in managing and valuing their positions since the war began.
Based on a model that links stocks and bond markets, MSCI on Friday said the market for credit-default swaps suggests that Russian stocks “may be essentially worthless” in contrast to the prices listed on the exchange.
The research also noted that the model’s results could also be the result of the Credit-default swaps (CDS) market itself being distorted by the Russia-Ukraine war. If a default causes a payout on a CDS, the underlying bonds would have to be auctioned.
The model works on the assumption that if a firm’s stock price goes to zero, it will choose to default on its debt. MSCI explained that a company’s default risk is driven by its value relative to its level of debt.
Models rooted in this concept have been used to calculate default probabilities from share prices, but they can also infer equity prices from default probabilities, which MSCI analysts did in Friday’s research note.
Credit-default swaps are derivatives that enable investors to swap their credit risk of a company, country, or other entity with that of other investors.