Russian Equities Weekly 7-11 December, 2020: Russian equities continue to outperform the broader EM

Russian equity market dynamics

Last week, the Russian equity market outperformed the broader emerging markets (EM) index once again.

This was mainly due to the impact from Russia-specific factors. The rouble strengthened by 1.5%, which likely happened on the back of foreign investors’ continuing interest in local bonds. According to the National Settlement Depository, the net purchases of OFZ (coupon-bearing Russian government bonds) by non-residents increased from RUB 8 billion (USD 0.1 billion) to RUB 23 billion (USD 0.3 billion) last week. Additionally, the shares of one of the index heavyweights, Sberbank, gained 5% on the back of its announcement about profits for 2020, which its CEO expects to exceed RUB 700 billion (around USD 10 billion).

  Week YTD
MSCI Russia 10/40 TR in USD 4.2% -1.6%
MSCI EM index TR in USD 0.5% 15.0%
Excess return 3.6% -16.7%
Due to Russia specific factors* 2.9% -0.6%
Due to difference in sector structure* 0.7% -16.0%
Key commodities**
Oil 2.1% -25.1%
Gold -0.1% 21.6%
FX
RUB/USD 1.5% -15.1%
RUB/EUR 1.8% -21.5%
* See details of methodology in the end of the report

** Energy weight in the MSCI Russia 10/40 is 34%, Gold producers weight in the index is 9% (weights are as at the end of November 2020)

Data as of 11 December 2020

TKB Investment Partners (JSC) calculations; Bloomberg

  Current
Upside/downside to fair price 1%
Data as of 11 December 2020
TKB Investment Partners (JSC) calculations

Main Russian news

Following unsuccessful rounds of negotiations, Russia’s Ministry of Finance has started preparing a bill to denounce an agreement with Netherlands on double taxation avoidance. The existing agreement allows profits to be withdrawn from Russia at an effective rate of 2%-3%. The Russian Ministry had earlier suggested increasing the withholding tax on dividends to 15%, but the Netherlands declined this proposition. Without the current agreement, Russian companies operating through the Netherlands will have to pay higher taxes from 2022. The potentially affected companies include Yandex, Svyaznoy and X5 Group.

The same tax hike proposition has already been accepted by Cyprus, Luxemburg and Malta. During those negotiations, Cyprus initially refused the proposal and the Russian ministry announced it would prepare the bill denouncing the agreement. Shortly after that, Cyprus agreed to the tax hike. So, the new bill might also be just a negotiating step by the Russian Ministry in its dealings with the Netherlands.

The suggested tax hikes are among the economic support measures announced by President Putin in March 2020. The Ministry of Finance claimed that some RUB 340 billion (USD 5 billion) flowed from Russia to the Netherlands last year in the form of dividends.

To watch…

Rosstat is due to publish some key macroeconomic figures for November later this week.

The Central Bank of Russia will hold its final monetary policy meeting of the year.

 

Author: Aleksandra Kuznetsova, Junior Investment Specialist

Sources: Rosstat, Moscow Exchange, Vedomosti, Bloomberg, TKB Investment Partners (JSC); December 2020

Russian Equities Weekly_14 December 2020
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