Russian equity market dynamics
Last week, the Russian equity market slightly underperformed the broader emerging market (EM) index, by 0.2%.
The relative underperformance was mainly due to the difference in the two indices’ sector structures:
- Overweight of the Russian index in the materials sector, which declined on the back of lower metals prices
- Overweight in the energy sector, due to the decline in oil prices amid talks about the potential removal of US sanctions on Iranian oil
- The absence of the consumer discretionary and IT sectors in the Russian index, which rose by 3.2% and 2.7%, respectively, after previous strong underperformance.
Russia-specific factors almost completely offset the negative impact from the sector-specific factors. This was mainly due to increased optimism of investors amid the US decision to waive sanctions on the company in charge of the Nord Stream 2 pipeline.
|MSCI Russia 10/40 TR in USD||1.5%||10.9%|
|MSCI EM index TR in USD||1.7%||3.6%|
|Due to Russia specific factors*||0.9%||1.5%|
|Due to difference in sector structure*||-1.2%||5.8%|
|* 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 33%; gold producers’ weight in the index is 9% (as at the end of March 2021)
Data as of 21 May 2021
TKB Investment Partners (JSC) calculations; Bloomberg
|Upside/downside to fair price||7%|
|Data as of 21 May 2021
TKB Investment Partners (JSC) calculations
Main Russian news
The US administration is not going to impose new sanctions on Nord Stream 2 AG – the company in charge of building the Nord Stream 2 gas pipeline. Meanwhile, sanctions are being imposed on 13 Russian vessels and four other companies participating in the project, including the Russian government-owned Marine Rescue Service. In a report to Congress on 19 May, the US State Department said that Nord Stream 2 AG and its CEO Matthias Warnig are engaged in sanctionable activity but the administration will waive penalties to avoid a confrontation with Germany and other European Union allies that back the project. As of the end of March, 95% of the pipeline was complete and the project is likely to be fully completed this year. We think the successful launch of the Nord Stream 2 project could a trigger for a further evaporation of sanctions risk from Russian equities prices. Please see further details in “Russian equities riding the long-term commodities growth trend”.
Author: Marina Tsutskiridze, Investment Specialist
Sources: Rosstat, Bloomberg, TKB Investment Partners (JSC); May 2021