Russian equity market dynamics
Last week, the Russian equity market outperformed the broader emerging markets (EM) index, mainly due to the impact from Russia-specific factors: a strengthening of the rouble and growth of the Russian index heavyweight, Sber. The bank’s shares rose by 9% in USD terms. This was likely due to shareholders reinvesting dividends paid by the company earlier.
Week | YTD | |
MSCI Russia 10/40 TR in USD | 2.5% | -16.4% |
MSCI EM index TR in USD | 1.1% | 3.9% |
Excess return | 1.4% | -20.3% |
Due to Russia specific factors* | 1.2% | -2.7% |
Due to difference in sector structure* | 0.2% | -17.6% |
Key commodities** | ||
Oil | -1.4% | -38.2% |
Gold | -0.1% | 25.7% |
FX | ||
RUB/USD | 2.1% | -18.6% |
RUB/EUR | 0.9% | -22.9% |
* 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 23 October 2020 TKB Investment Partners (JSC) calculations; Bloomberg |
Current | ||
Upside/downside to fair price | 13% | |
Data as of 23 October 2020 TKB Investment Partners (JSC) calculations |
Main Russian news
Russia’s key macroeconomic indicators slowed in September. Industrial production worsened mainly due to a slowdown in manufacturing. The slight improvement in the extraction segment was not enough to compensate. Retail sales slowed in both the food and non-food segments. Rosstat published real wage growth data for August which showed an increase of 0.1% YoY.
Indicator | Growth YoY | |
August 2020 | September 2020 | |
Industrial production | -4.2%* | -5.0% |
Manufacturing | 0.4%* | -1.6% |
Extraction | -10.6%* | -10.0% |
Retail sales | -2.7% | -3.0% |
Food | -4.1% | -4.6% |
Non-food | -1.2% | -1.3% |
Real wages | 0.1%* | Not available |
*Data revised by Rosstat
The Central Bank of Russia (CBR) left the key rate unchanged at 4.25%. The bank expects volatility in the near term due to the worsening Covid-19 situation and geopolitical issues. The decision not to change the key rate was widely expected by the markets. The CBR expects inflation to be in the 3.9%-4.2% range at the end of 2020, then to range between 3.5% and 4.0% in 2021 and remain at around 4.0% in 2022. The bank also upgraded its GDP forecast for 2020. It now expects GDP to contract by 4.0%-5.0% in 2020, thus less severely than the 4.5%-5.5% it had forecast earlier. GDP is expected to start rising in 2021, by 3.0%-4.0%. The CBR hinted that there is a possibility of a rate cut at the next monetary policy meeting in December. The CBR governor, E. Nabiullina, said the bank is taking the worsening of the Covid-19 situation as its base case scenario and is considering a soft monetary policy for the next year.
Author: Aleksandra Kuznetsova, Junior Investment Specialist
Sources: Rosstat, Vedomosti, Bloomberg, TKB Investment Partners (JSC); October 2020
Russian Equities Weekly_26 October 2020