Russian Equities Weekly 19-23 April, 2021: Central Bank of Russia raises its key rate to 5%

Russian equity market dynamics

Last week, the Russian equity market outperformed the broader emerging market (EM) index by 1.2%.

The relative outperformance was mainly due to Russia-specific factors. Sanctions fears eased further as investors saw no material effect from the latest sanctions on the Russian economy. According to the Central Bank of Russia, the outflow from Russian government debt since the sanctions were announced has totalled RUB 43 billion (USD 0.6 billion), which it views as insignificant.

  Week YTD
MSCI Russia 10/40 TR in USD 1.5% 6.7%
MSCI EM index TR in USD 0.3% 5.2%
Excess return 1.2% 1.5%
Due to Russia specific factors* 1.6% -0.5%
Due to difference in sector structure* -0.4% 2.0%
Key commodities**
Oil -1.7% 27.8%
Gold 0.4% -5.6%
RUB/USD 1.1% -1.1%
RUB/EUR 0.0% -0.9%
* 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 35%; gold producers’ weight in the index is 8% (as at the end of March 2021)

Data as of 23 April 2021

TKB Investment Partners (JSC) calculations; Bloomberg

Upside/downside to fair price 5%
Data as of 23 April 2021
TKB Investment Partners (JSC) calculations

Main Russian news

The Central Bank of Russia (CBR) raised its key rate by 50bp to 5%. This was the second key rate increase in the last two months. The move was explained by a rapid recovery of consumption after the pandemic shock and higher-than-expected inflation. The CBR claimed that any further increase of the key rate will be discussed at the next monetary policy meeting on 4 May. Additionally, the CBR published the key rate forecast for the first time. The regulator expects the average key rate to be in the 4.8%-5.4% range in 2021, 5.3%-6.3% in 2022 and 5%-6% in 2023.

 Russia’s key macroeconomic indicators were mixed in March. Industrial production improved, mainly due to increased output in the manufacturing segment. Retail sales weakened in both the food and non-food segments. Rosstat published real wage growth data for February, which showed an increase of 2.0% YoY.

Key macroeconomic indicators, YoY dynamics

Indicator Growth YoY
February 2021 March 2021
Industrial production -3.2%* 1.1%
Manufacturing -1.7%* 4.2%
Extraction -9.0%* -5.6%
Retail sales -1.5%* -3.4%
Food -3.0%* -6.0%
Non-food 0.1%* -0.8%
Real wages 2.0%* Not available

*Data revised by Rosstat

Russia’s President Vladimir Putin announced new social support measures. They include:

  • Payments to families with children of school age, pregnant women and single-parent families with children under 16 years old
  • A cash-back programme to stimulate tourism within Russia
  • Support measures for the regions. The entire volume of regions’ commercial debt, which equates to more than 25% of their own revenues, will be replaced by budget loans with maturities until 2029. The regions will also be provided with infrastructure budget loans at a rate not higher than 3% and a maturity of 15 years.

The Minister of Finance, Anton Siluanov, said the measures would cost some RUB 400 billion (USD 5.3 billion), most of which – RUB 270 billion (USD 3.6 billion) – will be spent in 2021. According to the Minister, the new measures pose no inflation risk as they will only draw on budget funds and not involve external funding.


Author: Aleksandra Kuznetsova, Investment Specialist

Sources: Rosstat, Vedomosti, Bloomberg, TKB Investment Partners (JSC); April 2021

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