|RTS Total return (TR) in USD||1.2%||-18.1%|
|MSCI EM index TR in USD||1.6%||-9.3%|
|MOEX index TR in RUB|
|Small and mid-cap||2.4%||-1.4%|
|MOEX sector indices TR in RUB|
|Oil & Gas||0.3%||-17.4%|
|Metals & Mining||-0.2%||9.5%|
|Data as of June 19, 2020
TKB Investment Partners (JSC) calculations; Bloomberg
Russian equity market dynamics
Last week, the Russian equity market rose almost in line with the broader emerging markets (EM) index. The RTS index gained 1.2%, while the MSCI EM index grew by 1.6% (all figures in USD terms). Markets were supported by the US Federal Reserve’s announcement that it is expanding its corporate bond purchasing programme and talk that the US government is considering allocating USD 1 trillion for infrastructure investment as a measure of economic stimulus.
The power utilities sector outperformed the broader market, mainly thanks to OGK-2, Unipro, and RusHydro, whose share prices rose by 7.9%, 5.6% and 4.3%, respectively, in rouble terms. RusHydro rose amid news that the current CEO is to change in September. Investors expect this may lead to further business restructuring, the implementation of a new strategy, and the allocation of unprofitable Far Eastern capacities. OGK-2 and Unipro rose despite the lack of fundamental news.
The metal and mining sector was the worst performer overall, mostly due to Polymetal and Norilsk Nickel, whose shares declined by 3.0% and 2.5%, respectively. Norilsk Nickel is dealing with consequences of an accident in May at one of its plants that caused a massive diesel oil spill into a river. Investors have thus taken a dim view of the company’s ESG status. Polymetal underperformed despite the lack of market-moving news.
Main Russian news
Russia’s key macroeconomic indicators weakened in May. Quarantine measures continued to put pressure on industrial production, with declines in both the extraction and manufacturing segments. Extraction was additionally hit by the OPEC+ agreement to reduce oil production, which entered into force on 1 May. Non-food retail sales saw some improvement due to the easing of lockdown measures, but retail food sales deteriorated. Rosstat published real wage growth data for March, showing a decline of 2.0% YoY.
|April 2020||May 2020|
|Retail sales||-23.4 %||-19.2 %|
|Real wages||-2.0%||not available|
|* Data updated by Rosstat|
The Central Bank of Russia (CBR) cut its key rate by 100bp to 4.5%, in line with market expectations. The key rate now is at its lowest since September 2013. The main reason for the cut was the economy recovering more slowly than previously expected and the risk of a significant deviation of inflation from its target rate in 2021. The regulator said its main goal is to keep inflation close to the target level of 4%. The CBR’s governor, Elvira Nabiullina, foresees the decline in demand in the upcoming quarters being greater than previously expected. The CBR forecasts Russia’s Q2 2020 GDP growth to decline by 8%-10%. Ms. Nabiullina also noted that the regulator may consider further key rate cuts at the next meeting in July.
There is no significant news due this week.
Author: Marina Tsutskiridze, Junior Investment Specialist
Sources: Rosstat, Vedomosti, Bloomberg, TKB Investment Partners (JSC); June 2020Russian Equities Weekly 22 June 2020