Russian Equities Weekly 16–20/03/2020: The CBR leaves the key rate unchanged

  Week YTD
RTS Total return (TR) in USD -6.8% -40.2%
MOEX index TR in RUB
Composite 0.7% -23.2%
Blue chip 1.3% -25.8%
Small and mid-cap -2.4% -20.0%
MOEX sector indices TR in RUB
Consumer Goods 4.1% -13.0%
Oil & Gas 2.1% -32.6%
Power Utilities 1.4% -15.4%
Financial Services -1.6% -22.8%
Metals & Mining -4.7% -10.4%
RUB/USD -9.2% -22.3%
RUB/EUR -5.6% -18.8%
Data as of March 20, 2020
TKB Investment Partners (JSC) calculations; Bloomberg

Russian equity market dynamics

Last week, the Russian equity market contracted by less than the other emerging markets (EM). The RTS index lost 6.8%, while the MSCI EM index fell by 9.8% (all figures in USD terms). The uncertainty caused by the coronavirus outbreak and the recent drop in oil prices continue to pressure the developing markets, including Russia. The Russian market contracted by less than the EMs after having significantly underperformed the week before. Strong macroeconomic parameters and high dividend yields provided additional support for Russian equities.

The consumer goods sector outperformed the broader market mainly due to Magnit, Lenta and X5 Group, whose share prices rose by 20.1%, 19.0% and 10.8%, respectively, in rouble terms. The companies benefited from a surge in sales caused by the COVID-19 panic.

The metals & mining sector was the worst performer overall, mostly due to Norilsk Nickel, Alrosa and Polymetal. Norilsk Nickel was affected by falling palladium prices, while Polymetal was hit by declining gold prices. Alrosa declined despite the lack of market-moving news.

Main Russian news

Key macroeconomic indicators improved in February. Industrial production rose in both the manufacturing and extraction sectors. Likewise, retail sales improved in both the food and non-food segments. Rosstat published real wage growth data for January, which slowed to 6.5% YoY vs. 6.9% YoY in December.

Indicator Growth YoY
January 2020 February 2020
Industrial production 1.1% 3.3%
Manufacturing 3.9% 5.0%
Extraction -0.4% 2.3%
Retail sales 2.7% 4.7%
Food 2.9% 4.1%
Non-food 2.5% 5.3%
Real wages 6.5% not available

The Central Bank of Russia (CBR) left its key rate unchanged at 6%. According to the CBR governor, E. Nabiullina, this rate balances short-term inflationary and mid-term disinflationary factors in the current situation of high uncertainty. Nabiullina claims that there will not be a recession in Russia following the coronavirus outbreak, and despite the fall in oil prices. The CBR said GDP growth in Q2 2020 is forecast to be slower than in Q1, yet yearly growth is set to remain positive. Nabiullina expects growth to stabilise in Q3. The CBR will review the economic forecast at its April meeting. There were no hints regarding the next key rate move. Nabiullina said that in the mid-term, further cuts are possible, and, conversely, that in the short term, a key rate rise is not out of the picture while uncertainty prevails in the markets.

The Russian government and the CBR announced measures to support the economy in light of recent events. The authorities stressed that the scale and duration of the crisis have yet to be determined, so they have set aside the reserves of RUB 300 billion (close to USD 4 billion), which could be increased if necessary. The key measures support financial stability overall, individual industries and sectors of the economy and households and regional budgets.

1) Financial stability measures. The CBR will continue to be the source of liquidity. At the same budget deficit financing from the National Welfare Fund (NWF) reserves will support the rouble.

2) Support for industries and certain sectors of the economy. Airlines’ and tourist companies’ tax payments will be deferred and their loans restructured and prolonged. These sectors will receive guarantees from the government. The CBR has softened the requirements for banks for lending to the pharmaceutical industry and medical equipment producers. Small and medium-sized firms (SMEs) will receive support in the form of credits and rent payment deferrals. The government will ease requirements for companies working on state contracts. There will also be zero import tariffs on certain types of socially significant products.

3) Support for households and regional budgets. The authorities will guarantee payments for people required to self-isolate. The government will keep the budget spending close to the planned level, with no reduction. The Ministry of Finance will monitor the balance of regional budgets in real time, and will provide financial support as necessary.

To watch…

There is no significant news due this week.


Author: Aleksandra Kuznetsova, Junior Investment Specialist

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

Russian Equities Weekly 23 March 2020
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