Russian Equities Weekly 8-12 February, 2021: CBR signals end of rate-cut cycle

Russian equity market dynamics

Last week, the Russian equity market rose, but by less than the broader emerging market (EM) index.

The lag was mainly due to a Russia-specific factor, with media headlines speculating that the EU will impose new sanctions over Alexei Navalny’s detention.

	Week	YTD
MSCI Russia 10/40 TR in USD	1.6%	2.5%
MSCI EM index TR in USD	2.4%	10.8%
Excess return	-0.8%	-8.3%
Due to Russia specific factors*	-1.1%	-3.4%
Due to difference in sector structure*	0.3%	-5.0%
Key commodities**
Oil	5.9%	22.8%
Gold	0.7%	-3.8%
FX
RUB/USD	1.3%	0.5%
RUB/EUR	0.9%	0.9%
* See details of methodology in the end of the report ** Energy weight in the MSCI Russia 10/40 is 36%, Gold producers weight in the index is 9% (weights are as at the end of January 2021) Data as of 12 February 2021 TKB Investment Partners (JSC) calculations; Bloomberg
	Current
Upside/downside to fair price	4%
Data as of 12 February 2021 TKB Investment Partners (JSC) calculations

Main Russian news

The Central Bank of Russia (CBR) left its key rate at 4.25%. This is the fourth time in a row the regulator has left the rate unchanged. The decision was made on the back of inflation accelerating above the CBR’s forecast due to the recovery in demand at a time of limited product supply. The weakening of the rouble also added 1% to annual inflation. The regulator signaled it is set to end the rate-cut cycle, but said that it was too early to discuss rate hikes. The bank also raised its annual inflation forecast for 2021 from 3.5%-4.0% to 3.7%-4.2%. It expects inflation to peak in February-March at 5.5% and decline thereafter. According to the CBR’s governor, Elvira Nabiullina, the Russian economy may return to its pre-pandemic level by the end of 2021. Previously, recovery to that level was expected only by mid-2022.