Russian Equities Weekly 2–6/12/2019: Inflation slows again

Last week, the Russian equity market rose, following the other emerging markets (EM). The RTS index gained 0.7%, while the MSCI EM index rose by 0.9% (all figures in USD terms).

  Week YTD
RTS Total return (TR) in USD 0.7% 44.7%
MOEX index TR in RUB    
Composite -0.2% 32.0%
Blue chip -0.4% 35.2%
Small and mid-cap 1.1% 13.4%
MOEX sector indices TR in RUB
Metals & Mining 1.5% 14.5%
Consumer Goods 0.9% 11.2%
Financial Services -0.1% 30.5%
Oil & Gas -0.2% 29.4%
Power Utilities -0.5% 26.2%
FX    
RUB/USD 1.6% 8.7%
RUB/EUR 0.7% 12.7%
Data as of December 6, 2019
TKB Investment Partners (JSC) calculations; Bloomberg

Russian equity market dynamics

Last week, the Russian equity market rose, following the other emerging markets (EM). The RTS index gained 0.7%, while the MSCI EM index rose by 0.9% (all figures in USD terms). Strong economic data from the US and the EM increased investor appetite for risky investments which had a positive effect on the Russian market. Additionally, the Russian market was supported by the price of Brent crude rising by 6.7% last week in anticipation of the decision by the OPEC+ group to go for deeper production cuts.

The metals & mining sector outperformed the broader market, mainly driven by Norilsk Nickel and Polymetal, whose shares rose by 5.9% and 3.9%, in rouble terms, respectively. Norilsk Nickel was supported by strong Chinese PMI data. Polymetal rose despite the lack of fundamental news.

The power utilities sector lagged the wider market. The worst performers were Mosenergo and OGK-2. There was no news to justify poor performance of these stocks.

Main Russian news

Inflation in Russia continued to slow. Consumer price inflation (CPI) slipped to 3.5% YoY at the end of November from 3.8% at the end of October. Inflation slowed in both the food and non-food sectors. Food inflation slipped to 3.7% YoY from 4.2%, while non-food inflation contracted to 3.1% YoY vs. 3.2%. This was enough to offset the rise in services inflation to 3.9% YoY after 3.8%. The Ministry of Economic Development expects December inflation to stay at the same level as in November. Moreover, the Ministry forecasts January 2020 inflation to slow to 2.5%-2.7% YoY due to the high January 2019 inflation base. This may further support expectations of another key rate cut at the next Central Bank of Russia meeting in December.

OPEC+ members decided to cut daily oil production by 503 000 barrels on top of existing quotas. This makes daily oil output 1.7 million barrels lower than the October 2018 level. Russia’s new quota is 10.3 million barrels per day (without condensate). Experts suggest that this move will enable the industry to reduce excess supply and support oil price levels. Analysts fear that there may still be excess supply in the first half of 2020 due to the continuing rise in production in the US. The next meeting on the oil cuts policy will be held in March 2020.

Last week saw the official opening of the gas transmission system, Power of Siberia, Gazprom’s first export pipeline targeted at a new market: China. Power of Siberia is Gazprom’s largest project by far. The pipeline launch should help the company become less dependent on the European market. In 2018, 201 billion cubic meters of gas (40% of Gazprom’s output) went to Europe. At full capacity, Power of Siberia will provide Gazprom with 38 billion cubic meters of gas per annum for export. At the moment only one of two gas fields is connected to the pipeline. The other one – Kovyktinskoye – is planned for launch by 2025. The need for export route diversification has been growing. From January to September 2019, Gazprom’s share of overall gas exports to Europe fell for the first time in a number of years.

This project takes Russia and China one step closer to the USD 200 bn bilateral trade goal set up by the two countries’ governments.

To watch…

Rosstat is due to publish preliminary GDP production estimates for Q3 2019

The Central Bank of Russia will hold a monetary policy meeting next week.

 

Author: Aleksandra Kuznetsova, Junior Investment Specialist

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

Russian Equities Weekly 9 December 2019_SL
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