Russian Equities Weekly 19-23 October, 2020: Central Bank of Russia leaves key rate unchanged

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%
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


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
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