Last week, the Russian equity market contracted, as did other emerging markets (EM). The RTS lost 1.3%, while the MSCI EM index fell by 1.5% (all figures in USD terms). One particular adverse factor for the Russian market was Gazprom’s stock price coming under pressure, falling by 7% in USD terms on the back of rumours about the upcoming SPO.

  Week YTD
RTS total return (TR) in USD -1.3% 44.8%
MOEX index TR in RUB    
Composite -1.3% 32.0%
Blue chip -1.5% 35.5%
Small and mid-cap 0.5% 12.2%
MOEX sector indices TR in RUB
Financial Services 1.0% 29.6%
Power Utilities -0.4% 25.4%
Consumer Goods -0.5% 8.9%
Oil & Gas -1.3% 32.7%
Metals & Mining -2.0% 13.0%
FX    
RUB/USD 0.1% 8.6%
RUB/EUR 0.0% 12.7%
Data as of November 15, 2019
TKB Investment Partners (JSC) calculations; Bloomberg

Russian equity market dynamics

Last week, the Russian equity market contracted, as did other emerging markets (EM). The RTS lost 1.3%, while the MSCI EM index fell by 1.5% (all figures in USD terms). One particular adverse factor for the Russian market was Gazprom’s stock price coming under pressure, falling by 7% in USD terms on the back of rumours about the upcoming SPO.

The financial services sector outperformed the broader market. This was mainly due to VTB and Moscow Exchange, whose shares rose by 2.0% and 1.0%, respectively, in rouble terms. VTB increased on the news of the company selling its stock in Tele 2 to Rostelecom. The move increases VTB’s free cash flow which could potentially mean higher dividends. Moscow Exchange rose despite the lack of fundamental news.

The metals & mining sector was the worst performer of the week, dragged down mainly by Norilsk Nickel and Severstal. Norilsk Nickel fell on the back of contracting nickel and palladium prices. Severstal fell after the Capital Markets Day, where the company announced that the CAPEX for 2020 will be increased to USD 1.7 billion which might hit future dividends.

Main Russian news

Rosstat reported its preliminary estimate of 1.7% for Q3 GDP growth in Russia. This was below the earlier growth projection estimate of 1.9% published by the Ministry of Economic Development. Either way, GDP growth accelerated from 0.9% in Q2, due mainly to rises in industrial production, and wholesale goods and agricultural output. The Ministry of Economic Development expects GDP growth in Q4 to be in line with that of Q3 and forecasts growth of 1.3% for the whole year.

In 2019, the amount of planned federal budget expenditure that is not spent could reach RUB 1 trillion (USD 15.7 billion). During the first nine months, only 63% of the expenditure budget was used. Approximately 52% of the budget was spent on national projects and some 13 national projects are at risk of not reaching their target goals for 2019. In August, the Ministry of Economic Development stated that five national targets would not be achieved in 2019, including a 0.5% increase in real wages and reducing the poverty rate to 12%. According to experts, poor budget spending execution is largely due to national projects not being thoroughly ready. Funds unused by the end of this year will be transferred to the budget for 2020.

To watch…

Rosstat is due to publish industrial production and some other key macroeconomic figures for October 2019.

 

Author: Aleksandra Kuznetsova, Junior Investment Specialist

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

Russian Equities Weekly 18 November 2019_SL
Categories: Market Pulse