Russian equity market dynamics

Last week, the Russian equity market outperformed the broader emerging markets (EM) index. The RTS index increased by 3.3%, while the MSCI EM index rose by only 0.6% (in USD terms). The escalation in tensions between the US and China limited the growth of the EM. Russian market was supported by the Central Bank of Russia’s (CBR) decision to cut its key interest rate.

 The metals and mining sector outperformed the broader Russian market, mainly thanks to Polymetal and Polyus, which rose by 15.8% and 15.4%, respectively, in rouble terms, on the back of gold prices gaining 5.2%.

The oil & gas sector was the worst performer, mostly due to Rosneft, which lagged the market despite the absence of market-moving news. With oil trading sideways and lack of other catalysts, the sector showed lacklustre performance.

  Week YTD
RTS Total return (TR) in USD 3.3% -15.8%
MSCI EM index TR in USD 0.6% -3.3%
MOEX index TR in RUB
Composite 3.2% -2.4%
Blue chip 3.0% -5.7%
Small and mid-cap 2.8% 3.0%
MOEX sector indices TR in RUB
Metals & Mining 6.6% 21.5%
Consumer Goods 5.4% 22.2%
Financial Services 4.4% 5.3%
Power Utilities 3.7% 16.7%
Oil & Gas 0.8% -17.9%
FX
RUB/USD 0.3% -13.5%
RUB/EUR -1.6% -16.7%
Data as of 24 July 2020
TKB Investment Partners (JSC) calculations; Bloomberg

Main Russian news

The CBR cut its key rate by 25bp to 4.25% as disinflationary factors continued to hold back inflation. According to the CBR governor E. Nabiullina, lifting the restrictive measures against the spread of the COVID-19 helped economic activity get on the recovery path. However, a complete recovery will take more than 1.5 years. This is the third rate cut this year. From the beginning of 2020, the CBR has lowered the rate by 2% from 6.25%. Nabiullina hinted that there was a room for another cut this year.

The CBR upgraded its macroeconomic forecast for 2020-2022. It now feels more optimistic about oil prices, forecasting the average Urals price at USD 38/bbl in 2020 after a previous forecast of USD 27/bbl. Expectations of the average price for 2021 also increased, to USD 40/bbl from USD 35/bbl earlier. Additionally, the CBR tightened the expected range for the decline in GDP for 2020 to 4.5–5.5% from its previous forecast of 4.0-6.0%. After that, it forecasts GDP growth of 3.5–4.5% in 2021 and 2.5–3.5% in 2022. The CBR expects annual inflation to be 3.7-4.2% in 2020 against its 3.8-4.8% forecast earlier.

To watch…

There is no significant news to follow this week.

Author: Aleksandra Kuznetsova, Junior Investment Specialist

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

Russian Equities Weekly 27 July 2020
Categories: Market Pulse