Russian Equities Weekly 12-16 October, 2020: Investors concerned about sanctions and oil demand

Russian equity market dynamics

Last week, the Russian equity market underperformed the broader emerging markets (EM) index, due to the impact from both Russia-specific factors and a difference in sector structures.

  • Russia-specific factors: The Russian index heavyweight Yandex failed in its USD 5.5 billion Tinkoff acquisition talks with TCS Group, which would have been Russia’s biggest corporate deal of 2020. Additionally, the EU and the UK imposed sanctions on six government officials and one research organisation over the alleged poisoning of a prominent government opposition activist. However, we believe that the introduction of material sanctions is unlikely. Read more in our recent white paper
  • Difference in sector structures: Growing uncertainties over oil demand amid new lockdown measures across EU countries put pressure on Russia’s energy sector.
  Week YTD
MSCI Russia 10/40 TR in USD -2.2% -18.5%
MSCI EM index TR in USD 0.1% 2.7%
Excess return -2.4% -21.2%
Due to Russia specific factors* -1.1% -3.5%
Due to difference in sector structure* -1.3% -17.8%
Key commodities**
Oil 0.3% -37.3%
Gold -0.9% 25.8%
RUB/USD -1.4% -20.3%
RUB/EUR 0% -23.6%
* 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 16 October 2020
TKB Investment Partners (JSC) calculations; Bloomberg


Upside/downside to fair price 15%
Data as of 16 October 2020
TKB Investment Partners (JSC) calculations

Main Russian news

The International Monetary Fund (IMF) softened its outlook for the Russian economy. The agency expects Russia’s GDP to decline by 4.1% in 2020 vs. the drop of 6.6% it had forecast in June. The outlook change came after better Q2 results and signs of a stronger recovery in Q3. However, the IMF downgraded its GDP forecast for 2021 to growth of 2.8% from the previous estimate of 4.1%, reflecting the more moderate downturn projected for 2020. Moreover, the IMF expects average annual inflation in 2020-2021 to be around 3.2%, and the unemployment rate not to fall below 5%.

The Central Bank of Russia (CBR) reported an improvement in the current account in Q3. After a Q2 deficit of USD 0.5 billion, the Q3 figures turned positive at a surplus of USD 2.5 billion. The total surplus for the first nine months of 2020 was USD 24.1 billion. The current account was mainly supported by a stronger-than-expected decline in imports. However even this relatively strong surplus was not enough to cover net capital outflows, which totalled USD 7.9 billion in Q3, and USD 35.5 billion over the first nine months of 2020.

To watch…

Rosstat is due to publish macroeconomic figures for September later this week.

Author: Marina Tsutskiridze, Junior Investment Specialist

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

Russian Equities Weekly_19 October 2020
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