Russian equity market dynamics

Last week, Russian equities underperformed the broader emerging markets (EM) index. The Russian market’s relatively poor performance can be explained by the fact that it came under pressure from both country-specific factors and the differences between the Russian and EM index structures:

  • Sector-related factors. The main hit came from the oil price dropping by 7.7% on the news that US president Donald Trump had tested positive for COVID-19, which increased uncertainty about the US presidential elections on 3 November
  • Russia-specific factors. The Duma approved an increase in oil and metals extraction tax rates, which had been submitted by the Ministry of Finance in mid-September.
  Week YTD
MSCI Russia 10/40 TR in USD -0.3% -18.1%
MSCI EM index TR in USD 2.2% -1.2%
Excess return -2.6% -16.9%
Due to Russia specific factors* -1.1% -1.3%
Due to difference in sector structure* -1.5% -15.6%
Key commodities**
Oil -7.7% -42.9%
Gold 2.3% 25.6%
FX
RUB/USD -0.1% -20.7%
RUB/EUR -0.9% -24.3%
* See details of methodology in the report
** Energy weight in the MSCI Russia 10/40 is 33%, Gold producers weight in the index is 9% (weights are as at the end of September 2020)
Data as of 2 October 2020
TKB Investment Partners (JSC) calculations; Bloomberg

 

  Current
Upside/downside to fair price 16%
Data as of 2 October 2020
TKB Investment Partners (JSC) calculations

Main Russian news

The Russian government has submitted a 2021-2023 draft budget to the State Duma. Revenues are expected to amount to RUB 18.8 trillion (~USD 24 billion) in 2021, and then climb to RUB 20.6 trillion (~USD 26 billion) in 2022, and RUB 22.3 trillion (~USD 28 billion) in 2023. The budget deficit is forecast at 2.4% of GDP in 2021, and around 1% of GDP in 2022 and 2023. The main source of financing the deficit will be borrowing.

The draft budget takes into account a slow recovery of the global economy due to the restrictions that are still in place amid the spread of COVID-19. The government’s forecast suggests that the Russian economy will grow by 3.3% in 2021, by 3.4% in 2022 by 3% in 2023. During this period, inflation is expected to be less than 4%.

The draft must pass three readings in the Duma before it is approved.

To watch…

Rosstat is due to publish inflation figures for September.

Author: Marina Tsutskiridze, Junior Investment Specialist

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

Russian Equities Weekly_5 October 2020
Categories: Market Pulse