Russian Equities Weekly 3–7/06/2019: Still ahead of the broader EM index

  Week YTD
RTS Total return (TR) in USD 3.0% 25.1%
MOEX index TR in RUB    
Composite 2.4% 16.2%
Blue chip 2.5% 18.7%
Small and mid-cap 1.7% 8.2%
MOEX sector indices TR in RUB    
Financial Services 4.5% 18.1%
Power Utilities 3.9% 18.6%
Metals & Mining 1.8% 3.7%
Consumer Goods 1.0% 9.5%
Oil & Gas 0.5% 10.9%
RUB/USD 0.7% 7.0%
RUB/EUR -0.7% 8.8%

Data as of June 7, 2019
TKB Investment Partners (JSC) calculations; Bloomberg

Russian equity market dynamics

The Russian equity market rose for the fourth consecutive week last week, with the RTS and the MSCI EM index gaining 3.0% and 0.9%, respectively. Expectations of high dividends continued to support the Russian market. Last week, this factor had a particularly strong impact on the two large cap stocks, Gazprom and Sberbank:

  • Last week was the last opportunity to get exposure to Sberbank dividends for 2018. Earlier this year the bank announced record high dividends for 2018
  • Rumours that A. Miller is stepping down boosted Gazprom’s stock price. Miller is known to prefer a low dividend policy and equity market observers expect his successor to be more generous on dividends.

The financial services sector outperformed the market. This was mainly due to Sberbank and VTB, whose shares rose by 6.4% and 6.3%, respectively. Sberbank was supported by investors’ desire to get exposure to the dividends for the last year. VTB announced that it is not going to convert its preferred shares to ordinary shares, which would have been a risk for its ordinary shares price. However, VTB stated that it is considering buying back preferred shares later, when it has sufficient capital to do so.

The oil & gas sector was the worst performer of the week. It was dragged down by Novatek and Rosneft despite the lack of any fundamental news to justify the poor performance of their stocks.

Main Russian news

Inflation in Russia continued to slow. The consumer price index (CPI) slipped to 5.1% YoY as at the end of May from 5.2% YoY at the end of April, mainly due to lower inflation in non-food products. Non-food inflation fell to 3.8% YoY vs. 4.5% YoY. This was enough to compensate for food segment inflation accelerating to 6.4% YoY from 5.9% YoY. The Minister of Economic Development, Maxim Oreshkin, said that inflation this summer may slow more steeply than expected. His Ministry expects inflation in June to be 4.8%-4.9% in annual terms. In our view this would provide a good reason for the Central Bank of Russia to start cutting its key rate again.

Russia remained in the top 10 investment opportunities among European countries last year, according to Ernst & Young. The management consultancy posted its annual investment ratings for 2018. Russia was placed 9th among the top 20 most attractive European countries in which to invest. In 2018, foreign investors funded 211 Russian projects, 11% fewer than in 2017. As a result, Russia’s ranking fell from its 5th place position in 2017. The number of the US investment projects in Russia in 2018 rose by approximately 74% to 33 compared to 2017. The US became the leading foreign investor in Russia in terms of number of projects for the first time since 2013.

To watch…

There is no significant market-related news expected this week.

Author: Aleksandra Kuznetsova, Junior Investment Specialist

Sources: Vedomosti, Rosstat, Bloomberg, TKB Investment Partners (JSC); June 2019


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