Russian Equities Weekly 8-12 March, 2021: Fears of sanctions impact starting to evaporate

Russian equity market dynamics

Last week, the Russian equity market outperformed the broader emerging market (EM) index by 4.5%.

The relative outperformance was due to both Russia-specific factor and differences in the two indices’ sector structures.

  • Russia-specific factor: It appears that fears of sanctions have started to evaporate as investors have seen no material effect on Russia’s economy since the recent sanctions imposed by the EU and the US.
  • Sector-specific factors: 1) Overweight in the energy sector, which continues to make gains from the recent recovery in oil prices. 2) Overweight in the materials sector. The sector has been supported by higher metals prices and investor interest shifting to cyclical stocks.
  Week YTD
MSCI Russia 10/40 TR in USD 5.2% 6.0%
MSCI EM index TR in USD 0.7% 4.6%
Excess return 4.5% 1.3%
Due to Russia specific factors* 2.6% -1.5%
Due to difference in sector structure* 1.2% 2.3%
Key commodities**
Oil -0.7% 34.6%
Gold 0.5% -9.7%
FX
RUB/USD 1.5% 1.0%
RUB/EUR 0.9% 2.7%
* 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 February 2021)

Data as of 12 March 2021

TKB Investment Partners (JSC) calculations; Bloomberg

  Current
Upside/downside to fair price 2%
Data as of 12 March 2021
TKB Investment Partners (JSC) calculations

Main Russian news

Russia’s National Welfare Fund (NWF) will not be replenished in 2021, according to the Accounts Chamber of the Russian Federation. The source of the NWF comes from excesses of oil and gas revenues, but in fact there was a shortage in revenues in 2020. Meanwhile, the size of the fund over the last year increased by more than 70% and as of the end of 2020 amounted to RUB 13.6 trillion (~USD 184 billion), or 11.7% of GDP. This was mainly due to the transfer of foreign currency to the NWF acquired by the Ministry of Finance under the budget rule in 2019. The devaluation of local currency provided additional earnings of RUB 1.9 trillion (~USD 26 billion). The Accounts Chamber said the replenishment of the NWF would only be possible in 2022 at the expense of any additional oil and gas revenues received in 2021.

 

Author: Marina Tsutskiridze, Investment Specialist

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

Russian Equities Weekly_15 March_2021
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