Russian equity market dynamics
Last week, the Russian equity market outperformed the broader emerging market (EM) index by 1.6%.
This was due to both the difference in the two indices’ sector structures and Russia-specific factors.
- Sector-specific factor: The Russian market was boosted by its underweight in the consumer discretionary sector, which dropped by 10% in the EM index
- Russia-specific factor: Investor concerns over geopolitical risks continued to evaporate. We assume that the announcement of the near completion of the Nord Stream-2 pipeline helped. Several newly introduced US and UK sanctions had no impact on the Russian market.
|MSCI Russia 10/40 TR in USD||-3.0%||14.6%|
|MSCI EM index TR in USD||-4.6%||-4.1%|
|Due to Russia specific factors*||0.9%||9.7%|
|Due to difference in sector structure*||0.7%||9.0%|
|MSCI EM HDY index TR in USD**||-3.0%||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 35%; gold producers’ weight in the index is 8% (as at the end of July 2021)
Data as of 20 August 2021
TKB Investment Partners (JSC) calculations; Bloomberg
|Upside/downside to fair price||14%|
|Data as of 20 August 2021
TKB Investment Partners (JSC) calculations
Main Russian news
The Nord Stream-2 pipeline is to be completed by 12 September. The Fortuna vessel has already started laying pipes in German waters, where there remains a 13-14km section to be constructed. Earlier last week, the vessel completed laying pipes for the second string of Nord Stream-2 in Denmark’s exclusive economic zone. The first string was completed at the beginning of June 2021. Gazprom expects the pipeline to supply 5.6 billion cubic metres of gas through Nord Stream-2 by the end of 2021.
The US and the UK introduced new sanctions against Russia a year after the alleged Navalny poisoning. The US’s new sanctions were on nine Russian citizens and two Russian organisations. Additionally, last week President Biden announced sanctions against the vessels involved in the construction of the Nord Stream-2 pipeline. However, the pipeline operator, Nord Stream 2 AG, was not affected by this move, as per the agreement between Germany and the US. The UK also implemented new sanctions on seven FSB employees, who are accused of being connected to the alleged poisoning of Alexei Navalny.
Rosstat is due to post industrial production figures for July 2021.
Author: Aleksandra Kuznetsova, Investment Specialist
Sources: Rosstat, Bloomberg, TKB Investment Partners (JSC); August 2021