Russian Equities Weekly 3–10/01/2020: Inflation continues to slow

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

  Week YTD
RTS Total return (TR) in USD 3.5% 4.5%
MOEX index TR in RUB    
Composite 1.8% 2.8%
Blue chip 1.4% 2.4%
Small and mid-cap 3.0% 3.9%
MOEX sector indices TR in RUB
Power Utilities 5.0% 6.5%
Financial Services 2.9% 3.5%
Metals & Mining 2.1% 3.5%
Oil & Gas 2.1% 3.4%
Consumer Goods 1.4% 1.8%
RUB/USD 1.7% 1.7%
RUB/EUR 2.1% 2.1%
Data as of January 10, 2019
TKB Investment Partners (JSC) calculations; Bloomberg

Russian equity market dynamics

Last week, the Russian equity market outperformed the other emerging markets (EM). The RTS index gained 4.5%, while the MSCI EM index has risen by 1.7% since the beginning of the year (all figures in USD terms). This happened despite the price of Brent crude falling by 1.7%. The Russian market was supported by strong fundamentals – please see our recent white paper for more details. An additional trigger was the news that inflation in Russia was 3% in 2019. This means that the real yield of various Russian financial instruments could be better than had been expected.

Improvements on the geopolitical front provided a favourable background for the Russian market as well. These included: 1) recent arrangements between Russia and Ukraine regarding the gas transit deal; 2) Europe supporting Russia in relation to the Nord Stream 2 project despite the sanctions imposed by the US.

The power utilities sector outperformed the broader market, mainly driven by Inter Rao and Rosseti, whose shares rose by 12.8% and 6.6%, in rouble terms, respectively. Inter Rao rose despite the absence of any fundamental news. Rosseti’s performance can be explained by the lasting effects of the company’s new dividend and management policy discussions. Last week, Rosseti announced that an additional share placement is planned by its subsidiaries but not by the parent company.

The consumer goods sector lagged the wider market. The worst performer was Ros Agro, which underperformed despite the lack of any explanatory news.

Main Russian news

Inflation in Russia continued to slow. Consumer price inflation (CPI) slipped to 3.0% YoY at the end of December from 3.5% YoY at the end of November. Inflation slowed in the food, non-food and services sectors. Food inflation slipped to 2.6% YoY from 3.7%, while non-food inflation contracted to 3.0% YoY vs. 3.1%. Services inflation slowed to 3.8% YoY after 3.9%. The Ministry of Economic Development expects 2020 inflation to stay at 3% while the Central Bank of Russia (CBR) forecasts inflation to be in the 3.5%-4.0% range. Furthermore, the Ministry of Economic Development expects January inflation to reach 2.5%-2.6% and Q1 2020 inflation to be 2.2%-2.3%.

Nord Stream 2 will be finalised at best at the end of 2020. Construction on the project is being hampered by the sanctions imposed by the US in December 2019. At the moment, the pipeline covers 93.5% of its planned route. According to Alexey Miller, Gazprom CEO, there are no technological obstacles to finishing the project, but company needs more time than originally planned. At a recent press conference, President Putin gave assurances that Nord Stream 2 can be finished without any involvement from foreign partners. During German Chancellor Angela Merkel’s recent visit to Moscow, she expressed her strong support for the Nord Stream 2 project. She criticised sanctions and stated that the project must be finished.

To watch…

There is no significant news due this week.


Author: Aleksandra Kuznetsova, Junior Investment Specialist

Sources: Rosstat, Bloomberg, TKB Investment Partners (JSC); January 2020

Russian Equities Weekly 13 January 2020
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