Russian equity market dynamics

Last week, the Russian equity market underperformed the broader emerging markets (EM) index. The Russian market’s relative performance came under pressure from a country-specific factor, namely that US and European officials made several remarks regarding the alleged poisoning of Navalny and the need for new sanctions against Russia.

We believe the introduction of material sanctions against Russia to be highly unlikely. Overall, there were over 55 sanction actions against Russia by the US and the EU between March 2014 and July 2020. None of these affected Russia’s ability to export commodities and none has been significant. Any material sanctions are likely to have a dramatic boomerang effect on Europe and the US. For more details of our views on this subject, click here.

  Week YTD
MSCI Russia 10/40 TR in USD -4.1% -14.6%
MSCI EM index TR in USD -2.0% 0.3%
Excess return -2.2% -14.8%
Due to Russia specific factors* -2.6% -1.5%
Due to difference in sector structure* 0.4% -13.3%
Key commodities**
Oil -7.5% -37.8%
Gold -1.6% 27.2%
FX
RUB/USD -1.8% -17.7%
RUB/EUR -0.9% -22.2%
* See details of methodology in the report
** Energy weight in the MSCI Russia 10/40 is 32%, Gold producers weight in the index is 11% (weights are as at the end of August 2020)
Data as of 4 September 2020
TKB Investment Partners (JSC) calculations; Bloomberg

 

  Current
Upside/downside to fair price 15%
Data as of 4 September 2020
TKB Investment Partners (JSC) calculations

Main Russian news

Inflation in Russia accelerated in August to 3.6% YoY from 3.4% YoY at the end of July. The acceleration occurred in all three main sectors. Food inflation rose to 4.3% YoY from 4.2%, while non-food inflation rose to 3.4% YoY vs. 3.1% a month earlier. Inflation in the services sector increased to 2.7% YoY from 2.5% in July.

The Moscow Exchange reported the record growth of new individual broker accounts in August. With more than 515 000 people joining last month, the number of individual investors reached 6.2 million people, a 63% increase from the beginning of the year. More than 950 000 private investors traded in August, which is nearly three times higher than the usual number of active investors per month. During August, individuals invested more than USD 0.5 billion in Russian stocks. Since the beginning of the year, net investment by Russian individuals into Russian stocks has totalled approximately USD 4 billion. The rising number of private investors in the Russian equity market has started to become a new supporting force for Russian stocks.

To watch…

Rosstat is due to post industrial production figures for August 2020 later this week.

Author: Aleksandra Kuznetsova, Junior Investment Specialist

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

Russian Equities Weekly_7 September 2020
Categories: Market Pulse