Russian Equities Weekly 9–13/03/2020: Pandemic cause global market collapse

  Week YTD
RTS Total return (TR) in USD -21.2% -35.8%
MOEX index TR in RUB    
Composite -14.8% -23.7%
Blue chip -16.0% -26.7%
Small and mid-cap -16.1% -18.1%
MOEX sector indices TR in RUB
Metals & Mining -8.8% -6.0%
Financial Services -10.7% -21.5%
Consumer Goods -11.7% -16.4%
Oil & Gas -20.0% -34.0%
Power Utilities -20.5% -16.6%
FX    
RUB/USD -5.5% -14.5%
RUB/EUR -3.9% -13.9%
Data as of March 13, 2020
TKB Investment Partners (JSC) calculations; Bloomberg

Russian equity market dynamics

Last week, the Russian equity market fell by more than the other emerging markets (EM). The RTS index lost 21.2%, while the MSCI EM index fell by 11.9% (all figures in USD terms). The coronavirus outbreak reached the level of a global pandemic. Additional pressure on oil prices arose from the failure of the OPEC+ agreement and start of an oil price war by Saudi Arabia. The Russian market came under additional pressure as oil prices dropped by 26%. Brent crude contracted to well below USD 42 per barrel – the level at which the budget rule protects Russia from oil price volatility. The steep drop in the oil price also caused a plunge in the rouble’s value.

The metals & mining sector outperformed the broader market mainly thanks to steel exporters, who benefited from the weaker rouble and steel price support, as prices have not been under excessive pressure recently.

The power utilities sector was the worst performer overall, mostly due to RusHydro and Inter RAO, whose share prices each fell by 22.2% in rouble terms. The sector is highly exposed to the rouble’s value and thus suffered from the currency coming under heavy pressure.

Main Russian news

The Central Bank of Russia (CBR) took measures to stabilise the Russian financial system. As part of the budget rule, the regulator stopped purchasing currency on the domestic market for 30 days from 9 March and started foreign currency sales. This decision is intended to help reduce volatility on financial markets. The CBR also held a repo auction involving RUB 500 billion in the face of fluctuating exchange rates. In addition, the bank imposed temporary regulatory easing for Russian banks.

The CBR announced that it is actively monitoring developments on the financial markets amid increased volatility. It claimed that the Russian financial system is better prepared for external shocks than it was in 2014-2015. Foreign and domestic debt has declined over the recent years. According to the bank, the weakening of the rouble was a significant, but short-term, inflationary factor. Inflation is expected to return more quickly than previously forecast to the target level from the lows of recent months. The CBR also added it has a full set of tools to maintain financial stability and is ready to use them promptly whenever the situation may require them.

To watch…

Rosstat is due to publish industrial production figures.

 

Author: Marina Tsutskiridze, Junior Investment Specialist

Sources: Vedomosti, Bloomberg, TKB Investment Partners (JSC); March 2020

Russian Equities Weekly 16 March 2020
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