Russian Equities Weekly 20–24/01/2020: Contracting together with the EM

  Week YTD
RTS Total return (TR) in USD -2.3% 3.6%
MOEX index TR in RUB    
Composite -1.6% 3.6%
Blue chip -1.9% 2.6%
Small and mid-cap 1.6% 9.9%
MOEX sector indices TR in RUB
Consumer Goods 1.8% 6.5%
Power Utilities 0.9% 13.2%
Financial Services -0.5% 5.0%
Metals & Mining -1.2% 7.7%
Oil & Gas -3.7% 0.1%
RUB/USD -0.7% 0.0%
RUB/EUR 0.0% 1.4%
Data as of January 24, 2019
TKB Investment Partners (JSC) calculations; Bloomberg

Russian equity market dynamics

Last week, the Russian equity market contracted, as did the other emerging markets (EM). The RTS index lost 2.3%, while the MSCI EM index declined by 2.4% (all figures in USD terms). The coronavirus outbreak in China added uncertainty to the outlook for global economic development. Brent crude oil prices falling by 8% appears to have placed no significant additional pressure on the Russian market.

The consumer goods sector outperformed the broader market, mainly driven by Magnit and X5 Retail, whose shares rose by 4.8% and 3.9%, in rouble terms, respectively. X5 Retail published strong Q4 2019 results. Its revenues rose by 11%YoY following a rise of 12.8% YoY in Q3. This news positively affected the whole sector including Magnit.

The oil & gas sector lagged the wider market. The worst performers were Surgutneftegas and Gazprom. Surgutneftegas corrected after strong growth. Gazprom came under pressure from market observers’ expectations of lower gas exports to Europe in January 2020. The company reduced its gas exports in view of high inventories reflecting low demand due to unseasonably warm weather.

Main Russian news

Russia’s industrial production in 2019 rose by 2.4% vs. 2.9% in 2018, according to Rosstat. This slightly exceeded the Ministry of Economic Development’s forecast of 2.3%. Manufacturing increased by 2.3% vs. 2.6% in 2018. At the same time, extraction rose by 3.1% vs. 4.1% the year before, and indeed extraction levels fell in each quarter throughout 2019. The Ministry of Economic Development said this was because of the limitations set on oil production following the OPEC+ agreement.

European rating agency Scope Ratings upgraded its assessment of Russia’s sovereign debt to BBB with a stable forecast. This is higher than the rating given to Russia by both S&P, which maintained its rating at BBB-, and Moody’s, which gives Russia at rating of Baa3. Scope Ratings noted high reserves and increased resistance to external economic shocks among the main reasons for the upgrade. The agency said the Russian economy’s low ratio of government debt to GDP is one of its strongest qualities. Additionally, 75% of total debt is denominated in roubles, which decreases the currency risk for the country. According to the agency, low GDP growth potential and risks of geopolitical shocks remain Russia’s main weaknesses.

Last week, the new prime minister of Russia, Mikhail Mishustin, appointed his Cabinet. While it includes 14 new ministers, the ministers for energy, agriculture, finance, foreign affairs and defence retained their positions. The former Minister of Economic Development, Maksim Oreshkin, was appointed as an advisor of President Putin. A former regional governor, Maksim Reshetnikov, will take Oreshkin’s place. Oreshkin claimed that foreign investors view the changes to the Cabinet as positive. Indeed, the rating agency, Moody’s, noted that the planned realisation of the national projects should have a positive effect on the economy, even though the sudden change of government adds a degree of uncertainty.

To watch…

Rosstat is due to publish a number of key macroeconomic figures for December 2019 this week.


Author: Aleksandra Kuznetsova, Junior Investment Specialist

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

Russian Equities Weekly 27 January 2020
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