Russian Equities Weekly June 14–18, 2021: Another GDP forecast upgrade

Russian equity market dynamics

Last week, the Russian equity market underperformed the broader emerging market (EM) index by 0.5%.

This was mainly due to a difference in the indices’ structures. The negative effect came from Russia’s overweight in the materials sector, which declined by 5%.

  Week YTD
MSCI Russia 10/40 TR in USD -2.0% 16.9%
MSCI EM index TR in USD -1.5% 6.2%
Excess return -0.5% 10.6%
Due to Russia specific factors* 0.5% 5.0%
Due to difference in sector structure* -1.0% 5.6%
MSCI EM HDY index TR in USD** -2.4% 10.1%
Key commodities***
Oil 1.2% 43.0%
Gold -5.7% -6.1%
RUB/USD -1.3% 1.5%
RUB/EUR 0.9% 4.5%
* See details of methodology at the end of the report

** MSCI Emerging Markets High Dividend Yield Index

*** We use Brent Oil and LBMA Gold price data, in USD terms. Energy weight in the MSCI Russia 10/40 is 37%; gold producers’ weight in the index is 9% (as at the end of May 2021)

Data as of 18 June 2021

TKB Investment Partners (JSC) calculations; Bloomberg

Upside/downside to fair price 4%
Data as of 18 June 2021

TKB Investment Partners (JSC) calculations

Main Russian news

The first face-to-face meeting between Vladimir Putin and Joe Biden was held on 16 June. The summit was highly anticipated as the relationship between Russia and the US has significantly deteriorated in recent months. The leaders met to discuss a wide range of pressing issues with the hope of bringing stability to Russian-US relations. As a result of the summit, the presidents reached an agreement to reinstall their ambassadors in Moscow and Washington after they were called home in March. At the same time, both sides still disagree over human rights issues, cyberattacks and Ukraine. The main outcome of the meeting was an agreement between Vladimir Putin and Joe Biden to work together further over the issues under dispute and try to find opportunities to develop positive relations between the two countries.

Fitch ratings agency has upgraded its forecast of Russia’s GDP for 2021 to 3.7% from 3.3%. The upgrade was based on higher oil production and recovery in consumption in Russia. Fitch noted that its forecast reflects its expectations that no further restrictions to combat Covid-19 will be introduced, that vaccinations will continue, and that external demand for Russian goods will increase. Fitch maintained its forecast that Russia’s GDP will grow by 2.7% in 2022 and by 2% in 2023.

According to Rosstat, Russia’s GDP fell by 0.7% YoY in Q1 of 2021. Earlier the agency had forecast that GDP would decline by 1% during this period. The positive factors supporting the upgrade was seen in industries related to water supply, waste disposal and pollution clean-up, which rose by 13% YoY; a 9% YoY increase in activity in the electricity, gas and steam supply segments; and the financial sector, which rose by 7%. At the same time, Rosstat recorded an 8% decline in the hotel business and catering sector, and a 7% fall in extraction sector activity. The Ministry of Economic Development’s current forecast suggests that Russian GDP will grow by 2.9% in 2021, while the World Bank and Fitch upgraded its forecast to 3.2% and 3.7% respectively.


Author: Marina Tsutskiridze, Investment Specialist

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

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