Russian Equities Weekly 07–11/10/2019: Emerging markets up

Last week, the Russian equity market outperformed other emerging markets (EM).

  Week YTD
RTS Total return (TR) in USD 1.8% 32.8%
MOEX index TR in RUB    
Composite 1.0% 22.0%
Blue chip 1.1% 24.1%
Small and mid-cap -1.1% 6.0%
MOEX sector indices TR in RUB
Oil & Gas 3.0% 20.8%
Financial Services 1.2% 21.2%
Metals & Mining 0.9% 9.4%
Power Utilities 0.4% 22.0%
Consumer Goods -4.4% 1.8%
RUB/USD 0.6% 7.8%
RUB/EUR 0.0% 11.9%
Data as of October 11, 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 1.8% while the MSCI EM index rose by 1.5% (all figures in USD terms). The easing of tensions between China and the US increased investors’ appetite for risk, which supported emerging markets, including Russia.

The oil & gas sector outperformed the market. This was mainly due to Novatek, Surgutneftegas and Tatneft, whose share price rose by 4.4%, 4.3% and 4.1%, respectively, in rouble terms, despite the lack of fundamental news.

The consumer goods sector was the worst performer of the week, dragged down mainly by Yandex and X5 Group. IT group Yandex lost 16.6% in rouble terms last week after the Presidential Administration discussed the draft law proposed by parliamentary deputy, Anton Gorelkin, which would limit foreign ownership of ‘significant information resources’ to 20%, on national security grounds. X5 Group contracted in line with the food sector as the market expects weak Q3 2019 figures.

Main Russian news

The World Bank lowered its forecast for Russian economic growth for 2019 to 1% from 1.2%. It was the 4th downgrade this year. The World Bank cited weak trade and investment growth to explain its decision:

  • Industrial production growth slowed due to OPEC’s oil production limits in the first half of 2019
  • A contaminated pipeline incident hit energy production
  • Higher VAT slowed retail sector growth.

As a result, the World Bank’s Russian GDP forecast this year has gradually fallen from 1.8% to 1%. Its forecast for 2020 is also lower, 1.7%, and for 2021 it remains unchanged at 1.8%, which is below the Ministry of Economic Development’s expectations. The Ministry expects GDP in 2019 to be 1.3%, then 1.7% in 2020 and 3.1% in 2021.

The Central Bank of Russia (CBR) plans to reduce its inflation forecast for 2019. The CBR’s Governor, E. Nabiullina, stated that in preparation for the next key rate revision meeting the CBR will publish a revised macroeconomic forecast. According to Nabiullina, with the current inflation trend, monetary policy will possibly loosen up quicker than expected.

To watch…

Rosstat is due to post industrial production and other key macroeconomic figures for September 2019.

Author: Aleksandra Kuznetsova, Junior Investment Specialist

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

Russian Equities Weekly 14 October 2019
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