Russian Equities Weekly 19–23/08/2019: Leading the broader emerging markets

  Week YTD
RTS Total return (TR) in USD 2.3% 25.2%
MOEX index TR in RUB    
Composite 1.7% 18.5%
Blue chip 2.0% 20.6%
Small and mid-cap 1.2% 9.1%
MOEX sector indices TR in RUB
Metals & Mining 2.7% 7.3%
Financial Services 1.9% 19.1%
Oil & Gas 1.1% 12.0%
Power Utilities 1.0% 19.0%
Consumer Goods 0.4% 10.5%
RUB/USD 0.7% 4.8%
RUB/EUR 0.0% 7.9%
Data as of July 23, 2019
TKB Investment Partners (JSC) calculations; Bloomberg

Russian equity market dynamics

Last week, the Russian equity market outperformed other emerging markets (EM). The RTS gained 2.3% while MSCI EM index rose by 0.4% (all figures in USD terms). The pressure on growth from the US-China tensions that is troubling many other EM did not have a significant impact on the Russian market. Russian equities are rare among EM equities for the value they offer.

The metals & mining sector outperformed the market. This was mainly due to Norilsk Nickel and Polymetal International, whose share prices rose by 5.0% and 3.6%, respectively, in rouble terms. Norilsk Nickel was supported by strong H1 2019 IFRS results, including a 8% YoY rise in revenues. Expectations from Fed Chair Jerome Powell’s speech, weak US manufacturing PMI data and the increasing tension between the US and China all boosted gold prices last week, which led to the rise in Polymetal International’s stock price.

The consumer goods sector was the worst performer of the week, dragged down mainly by Magnit and Rusagro. There was no news to justify Magnit’s poor performance, but Rusagro’s share price fell after the company released weak Q2 2019 results.

Main Russian news

Key macroeconomic indicators mostly weakened in July. The fall in industrial production was mainly due to a slowdown in manufacturing, and the increase in mineral extraction figures was not enough to compensate for this. Retail sales slowed in both the food and non-food sectors. Rosstat revised real wage growth for June from 2.3% to 2.9%, but this was still surpassed in July, with growth at 3.5% YoY.

Indicator Growth YoY
June 2019 July 2019
Industrial production 3.3% 2.8%
Manufacturing 3.4% 2.8%
Extraction 2.3% 3.0%
Retail sales 1.4% 1.0%
Food 1.4% 1.0%
Non-food 1.5% 1.0%
Real wages 2.9%* 3.5%

* Figures revised by Rosstat

Moody’s lowered its forecast for Russia’s economic growth for 2019 from 1.6% to 1.2%, and also reduced its expectations for a range of other EM countries. Explaining its decision, Moody’s cited the escalation of the US-China trade war and the transition to stimulative monetary policies by major central banks at a time of weak global economic growth. Even so, the rating agency left its forecast for Russian growth in 2020 unchanged at 1.5%. Moody’s expects inflation in Russia to be 4.6% in 2019 and 4% in 2020. This is higher than the Ministry of Economic Development’s forecast, which is that inflation will be around 3% during the first half of 2020.

To watch…

There is no significant economic or company news due out this week.

Author: Aleksandra Kuznetsova, Junior Investment Specialist

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

Russian Equities Weekly 26 August 2019
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