Russian equity market dynamics
Last week, the Russian equity market underperformed the broader emerging market (EM) index by 1.1%.
The relative underperformance was due to both the difference in the two indices’ sector structures and a Russia-specific factor:
- Russia-specific factor: Tensions between Russia and Ukraine continued to escalate. The Organization for Security and Cooperation in Europe (OSCE) reported a large increase in ceasefire violations in the conflict zone. A week earlier, the US Secretary of State and the EU representative for foreign affairs had agreed to coordinate their response to Russia’s involvement. Last week, the negative rhetoric continued as Biden’s administration pledged Washington’s support for Ukraine against Russia
- Sector-specific factor: Its overweight in the energy sector detracted from the relative performance of the Russian market vs broader EM. The sector lagged the overall market on the back of oil prices declining ahead of the OPEC+ meeting.
|MSCI Russia 10/40 TR in USD||1.3%||2.6%|
|MSCI EM index TR in USD||2.4%||4.0%|
|Due to Russia specific factors*||-0.6%||-2.1%|
|Due to difference in sector structure*||-0.5%||0.7%|
|* See details of methodology in the end of the report
** We use Brent Oil and LBMA Gold price data, in USD terms. Energy weight in the MSCI Russia 10/40 is 36%; gold producers’ weight in the index is 9% (as at the end of February 2021)
Data as of 2 April 2021
TKB Investment Partners (JSC) calculations; Bloomberg
|Upside/downside to fair price||4%|
|Data as of 2 April 2021
TKB Investment Partners (JSC) calculations
Main Russian news
OPEC+ members agreed to increase oil production from May 2021. Output will rise by 350 000 barrels per day (b/d) in May and June, then by a further 450 000 b/d in July. Russia will increase production by 114 000 b/d overall from May to June. Investors viewed the decision by OPEC+ as an optimistic sign since a more positive oil outlook implies the global economy is on its way to recovery. Oil prices rose by 3% on the day of the OPEC+ announcement.
The World Bank upgraded its forecast of Russia’s GDP growth in 2021 to 2.9% in view of the rapid lifting of COVID-19 restrictions in Russia. In an earlier report it expected 2.6% growth. This is close to the 3%-4% forecast by Central Bank of Russia (CBR). The World Bank’s analysts expect average inflation in Russia during 2021 to be around 4.3%. This is above the CBR’s expectation of 3.7%-4.2%. Additionally, the World Bank said that the poverty level in Russia will decline and reach pre-pandemic levels during 2022. The World Bank’ Russia GDP growth forecast for 2022 was also raised, from 3.0% to 3.2%.
Rosstat is due to publish inflation figures for March 2021.
Author: Aleksandra Kuznetsova, Investment Specialist
Sources: CBR, Vedomosti, Bloomberg, TKB Investment Partners (JSC); April 2021Russian Equities Weekly_5 April_2021