|RTS Total return (TR) in USD||7.3%||-23.3%|
|MSCI EM index TR in USD||0.5%||-18.8%|
|MOEX index TR in RUB|
|Small and mid-cap||3.3%||-9.1%|
|MOEX sector indices TR in RUB|
|Oil & Gas||4.4%||-19.8%|
|Metals & Mining||2.8%||10.9%|
|Data as of May 22, 2020
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 rose by 7.3%, while the MSCI EM index gain 0.5% (all figures in USD terms). The escalation in tensions between the US and China amid China’s announcement of imposing a new National Security Law on Hong Kong put pressure on EM. A 10% rise in oil prices and expectations of key interest rate cuts by the Central Bank of Russia has supported the Russian equity market. Russia has maintained the successful anti-crisis strategy, protected currency and suppressed inflation, and has now begun a key rate-cutting cycle. It is now possible that there could be a sharp reduction in the key rate without the risk of capital outflows.
The power utilities sector outperformed the broader market, mainly due to Rosseti, FGC UES and Inter RAO, whose share prices rose by 12.5%, 7.5% and 6.8%, respectively. Rosseti and FGC UES rose despite the lack of market-moving news. Inter RAO reported 11% YoY net income growth in Q1 of 2020, which exceeded analysts’ consensus.
The metals and mining sector was the worst performer overall, mostly due to Polyus and Polymetal, whose shares declined by 4.0% and 1.8%, respectively, amid a decline in gold prices.
Main Russian news
According to preliminary data, GDP in Russia rose by 1.6% in Q1 of 2020, slowing from 2.1% in Q4 2019. However, Q2 2020 GDP is expected to slide into a contraction amid the coronavirus pandemic and the fall in oil prices. The Ministry of Economic Development expects GDP to decline by 9.5% in Q2 and by 5% by the end of the year, before starting to recover in 2021. This is the Ministry’s base case scenario, and the parameters will be revised in August and September.
Industrial production weakened in April, declining by 6.6%YoY. This was due to a slowdown in both extraction, which dropped by 3.2% YoY, and manufacturing, which tumbled by 10% YoY. Manufacturing was hit hard by the consequences of the lockdowns introduced in late March. The companies most dependant on consumer demand suffered the most, since most stores were closed. At the same time, the pandemic caused explosive growth in the production of essential products. Thus, food production increased by 3.7% YoY, while drugs and medical equipment production rose by 13.5% YoY. However, this was not enough to offset the broader decline.
Rosstat is due to publish macroeconomic figures for April.
Author: Marina Tsutskiridze, Junior Investment Specialist
Sources: Rosstat, Vedomosti, Bloomberg, TKB Investment Partners (JSC); May 2020Russian Equities Weekly 25 May 2020