Russian stocks may have recovered some of their post-invasion losses, but the MOEX Russia, one of the most closely watched benchmarks of stocks trading in Moscow, is still down 40% since the start of the year in dollar terms, even though the Russian ruble has marched relentlessly higher as of late.
“We find that trading in Russian corporate CDS has surged since the Russia-Ukraine war began. Increased trading activity may indicate that the CDS market contains information not present in the equity market. Thus, our research incorporates the CDS market’s implied default probabilities to model Russian equity prices,” the MSCI team wrote in their note.
This would suggest that equity investors — a group that is presently being restricted by the Russian government to exclude most foreign investors — are pricing in much lower odds of default than those assigned by global credit markets. This dichotomy between who is allowed to own CDS vs. equities could be one factor driving the disconnect, MSCI said.