Russian Equities Weekly 11-15 January, 2021: The Ministry of Finance restarts FX purchases

Russian equity market dynamics

Last week, the Russian equity market declined, underperforming the broader emerging markets (EM) index.

This was due to both Russia-specific factors and a difference in sector structures:

  • Russia-specific factors: The equity market fell slightly amid headlines about the impending return of Alexei Navalny to Russia from Germany, where he had been treated for alleged Novichok poisoning. This raised expectations that his arrest upon arrival that could lead to new calls for sanctions
  • Difference in sector structures: The overweight in the materials sector put some additional pressure on the Russian equity market amid lower gold prices.
  Week YTD
MSCI Russia 10/40 TR in USD -0.3% 4.4%
MSCI EM index TR in USD 0.3% 5.2%
Excess return -0.6% -0.8%
Due to Russia specific factors* -0.4% -0.1%
Due to difference in sector structure* -0.2% -0.7%
Key commodities**
Oil -2.5% 6.5%
Gold -1.3% -2.6%
RUB/USD 0.7% 0.7%
RUB/EUR 2.7% 1.8%
* See details of methodology in the end of the report

** Energy weight in the MSCI Russia 10/40 is 32%, Gold producers weight in the index is 9% (weights are as at the end of December 2020)

Data as of 15 January 2021

TKB Investment Partners (JSC) calculations; Bloomberg

Upside/downside to fair price 1%
Data as of 15 January 2021
TKB Investment Partners (JSC) calculations

Main Russian news

The Ministry of Finance (MoF) is to start buying foreign currency on the domestic market under the budget rule for the first time since March 2020. The budget rule dictates that the tax income generated from oil prices that exceed the base level (in 2021 – USD 43.3/bbl) must be stored in the National Welfare Fund (NWF). Over the period 15 January-4 February, the ministry will acquire foreign currency worth between RUB 106.3 billion (~USD 1.4 billion) and RUB 7.1 billion (~USD 96 million) a day, an amount determined on the basis of the expected size of additional oil and gas revenues in January. We agree with the statement from the Central Bank of Russia that it is unlikely that foreign currency purchases would have a significant adverse effect on the rouble. We view this as a good sign of the regulator’s confidence in the rouble’s stability.

The number of retail investors on the Moscow Exchange in December has reached a record level of 8.8 million. 710 000 new accounts were opened during the last month of 2020. The number of active brokerage accounts grew to 1.4 million from 392 000 in December 2019. The annual trading volumes on the equity market reached an all-time high of RUB 23.9 trillion (~USD 322 billion), an almost two-fold increase YoY. Retail investors accounted for 40.6% of equity trading. Net inflows from individual Russian investors into the Russian equity market in 2020 totalled more than USD 4 billion. However, the December inflow was somewhat smaller, at around RUB 0.5 billion (USD 6.7 million). This was most likely because retail investors have yet to reinvest their cash after profit-taking in November 2020 totalling RUB 116 billion (~USD 1.5 billion).


Author: Marina Tsutskiridze, Junior Investment Specialist

Sources: CBR, Vedomosti, Bloomberg, TKB Investment Partners (JSC); January 2021

Russian Equities Weekly_18 January 2021
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