The ignominy of it. Moscow fell 17 places to 84th place in the ranking of the largest financial centres in the world and is now placed behind the two tiny Baltic capitals of Riga in Latvia and Tallinn in Estonia, according to the Z/Yen Group financial consulting company in its bi-annual report.
Russia made a big effort to plug itself into the global capital markets with a series of highly successful reforms during the boom years that ended in September 2008.The efforts were epitomised by a programme to remake Moscow as an International Financial Centre, confusingly shortened to IFC.
Huge progress was made. After a decade of debate the two leading stock exchanges — the dollar-denominated Russia Trading System (RTS) and ruble-denominated Moscow Interbank Currency Exchange (MICEX) — were merged into the Moscow Exchange (Moex), which has become a portfolio investors' darling. At the same time, the two leading depositories were merged into a central depository for not only the settlement and clearing of stock deals, but also to act as a custodian where investors can keep their shares. And Russia joined the Euroclear and Clearstream international settlement systems that allow Russian stocks and bonds to be directly bought and sold by traders in London and New York.
Since then, though, Russia’s showdown with the West over Ukraine has killed off the ability of Russian companies to tap the international capital markets. Financial sanctions imposed especially by the US on some of Russia’s biggest companies have lead compliance departments and risk officers around the world to shut Russian assets, although that might be starting to change now after the Russian government managed to issue $3bn of sovereign Eurobonds this year.
The lack of access to the international capital markets has hurt the Russian economy more than anything else the EU and US have done to punish the Kremlin for its aggression in Ukraine. Banks in particular used to borrow heavily abroad, “borrowing long and cheap overseas, but lending cheap and short at home”, as one top Russian banker summed it up. Banks and companies have spent most of the last two years deleveraging, a process that is now coming to an end, resulting in the rapidly falling capital flight figures, which was largely corporate repayment of debt rather than genuine capital flight.
Z/Yen produces its Global Financial Centres Index (GFCI) twice a year and found Moscow wanting. Russia’s northern capital St Petersburg also fell heavily in the index to 85th place.
The consultancy’s index puts Warsaw at the top of the list as the leading financial centre in Eastern Europe and in 45th place globally, after it rose three places in the rankings.
But the Baltic exchanges, which were all bought by the Swedish exchange OMX in the 1990s, have done especially well, despite their tiny daily turnover.
Riga entered the GFCI ranking for the first time in the previous listing and rose 19 places to 52th place in the current ranking. Tallinn also jumped 28 places to 50th place in the last six months.
Despite the Brexit fears, London remains in the number one spot globally, with New York in second place. Singapore, Hong Kong and Tokyo take the next three places on the list of a 100 countries.
The Global Financial Centres Index was first published in 2007 and has been updated every six months based on a survey of more than 3,000 professionals. It takes into account the five indicators of business environment, finance, infrastructure, human capital and reputation.