Russian equity market dynamics

Last week, the Russian equity market outperformed the broader emerging markets (EM) index. The RTS index rose by 4.1%, while the MSCI EM index gained 0.4% (in USD terms). The Russian market was supported by a strong performance from index heavyweight Sberbank (13% weight in RTS index), whose share price rose by 5.6% on anticipation of an increase in its dividend pay-out to 50% of net profits. Another major contributory factor was the outperformance of oil and gas companies, which together represent 41% of index’s weight.

The oil and gas sector outperformed the broader Russian market, mainly thanks to Tatneft and Novatek, whose share prices rose by 8.8% and 6.8%, respectively. Tatneft rose in anticipation of its dividend announcement for 2019. Novatek’s shares benefited from the rebound in gas prices in Europe.

The financial services sector performed the worst over the week, mostly due to TCS Group, whose share value fell by 10.3% amid profit-taking after their previous outperformance.

  Week YTD
RTS Total return TR in USD 4.1% -11.3%
MSCI EM index TR in USD 0.4% -0.1%
MOEX index TR in RUB    
Composite 3.0% 4.4%
Blue chip 3.2% 1.2%
Small and mid-cap 1.9% 9.4%
MOEX sector indices TR in RUB
Oil & Gas 5.4% -13.1%
Consumer Goods 0.9% 28.4%
Metals & Mining 0.8% 34.1%
Power Utilities 0.7% 17.0%
Financial Services -0.7% 10.5%
FX    
RUB/USD 1.2% -14.8%
RUB/EUR 0.0% -19.4%
Data as of 14 August 2020
TKB Investment Partners (JSC) calculations; Bloomberg

Main Russian news

Russian GDP contracted by 8.5% YoY in Q2 2020, according to a preliminary report from Rosstat. This assessment was more favourable than the official forecasts of both the Ministry of Economy, which expected a decline of 9.5%, and the Central Bank of Russia, which expected GDP to contract by 9.5%-10%. Rosstat also noted that in Q2 the decline in growth was seen in all sectors of the economy. The exception was agriculture, which rose by 3.1% YoY. The sharpest decline was seen in retail and wholesale sales, which dropped by 16.6% YoY and 9.2% YoY, respectively, as these sectors were hit hardest by the COVID-19 lockdown. There is a risk that the final figure reflecting the contraction in GDP in Q2 will be worse. The current estimate is based on the assumption that small and medium-sized businesses performed in line with the rest of the economy, but the lockdown conditions in Q2 may mean this was not the case.

Russia’s federal budget deficit over the period from January-July totalled RUB 1.5 trillion (~USD 20.5 billion), according to the Ministry of Finance (MoF). The preliminary report showed that budget revenues declined by 9.3% over the year to the end of July, mostly due to lower oil and gas prices. Budget expenditure during January-July amounted RUB 11.9 trillion (~USD 167 billion), or 60.6% of the total federal budget expenditure approved for 2020. The most significant increase in spending during the first seven months of 2020 was on healthcare – up by 102% YoY – and social support, on which spending rose by 29% YoY. According to the MoF forecast, the budget deficit will not exceed 5% of GDP in 2020.

To watch…

Rosstat is due to publish industrial production figures for July 2020.

 

Author: Marina Tsutskiridze, Junior Investment Specialist

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

Russian Equities Weekly 17 August 2020_
Categories: Market Pulse