Russian Equities Weekly 26-30 October, 2020: Lagging the broader emerging markets

Russian equity market dynamics

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

  • Russia-specific factors: International investors’ concerns over falling oil prices and sanctions triggered outflows from Russian government bonds. That in turn resulted in pressure on the rouble exchange rate.
  • Difference in sector structures: Overweight in the energy sector was the key detractor from the relative performance. This was mainly due to oil prices falling by 10%. Overweight in materials sector led to negative contribution as well.  A fall in gold prices put pressure on index heavyweights, gold producers Polyus and Polymetal, whose share prices contracted by 10% and 7% respectively, in USD terms.
  Week YTD
MSCI Russia 10/40 TR in USD -7.8% -23.0%
MSCI EM index TR in USD -2.9% 0.9%
Excess return -4.9% -23.8%
Due to Russia specific factors* -3.1% -4.8%
Due to difference in sector structure* -1.8% -19.1%
Key commodities**
Oil -10.2% -44.5%
Gold -1.1% 24.2%
RUB/USD -4.0% -21.9%
RUB/EUR -2.7% -25.0%
* See details of methodology in the end of 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 30 October 2020

TKB Investment Partners (JSC) calculations; Bloomberg

Upside/downside to fair price 18%
Data as of 30 October 2020
TKB Investment Partners (JSC) calculations

Main Russian news

The Minister of Finance, Anton Siluanov, claimed that the National Welfare Fund’s (NWF) reserves are large enough to finance the budget for three years should oil prices hover at around USD 20/bbl level. As of 1 October 2020, the reserves totalled more than USD 172 billion or 12.1% of GDP, including liquid assets of around USD 117 billion or 8.2% GDP. Earlier in October, President Putin passed a law which softens the Budget Rule for 2021. The legislation supports the use of the NWF to cover the budget deficit and finance the anti-crisis measures needed because of Covid-19. This will allow the government to increase its budget spending by around RUB 1 trillion (USD 12 billion).

To watch…

Rosstat is due to publish inflation figures for October 2020 later this week.


Author: Aleksandra Kuznetsova, Junior Investment Specialist

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

Russian Equities Weekly_02 November 2020_STE
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