Russian Equities Weekly August 30 – September 3, 2021: New monetary policy guidelines from the CBR

Russian equity market dynamics

Last week, the Russian equity market outperformed the broader emerging markets by 0.5%.

There was no significant news which supported Russian equities, so the relative gain might have been due to Russia escaping from the pressure from factors that capped other emerging markets: weak Chinese PMI data and growing concern over the regulatory crackdown in China on a wide range of industries.

  Week YTD
MSCI Russia 10/40 TR in USD 3.9% 22.0%
MSCI EM index TR in USD 3.4% 3.4%
Excess return 0.5% 18.5%
Due to Russia specific factors* 0.8% 9.0%
Due to difference in sector structure* -0.3% 9.6%
MSCI EM HDY index TR in USD** 2.5% 10.0%
Key commodities***
Oil 1.4% 41.3%
Gold 1.4% -3.4%
RUB/USD 1.0% 1.7%
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 35%; gold producers’ weight in the index is 8% (as at the end of August 2021)

Data as of 3 September 2021

TKB Investment Partners (JSC) calculations; Bloomberg

Upside/downside to fair price 9%
Data as of 3 September 2021

TKB Investment Partners (JSC) calculations

Main Russian news

Russia’s key macroeconomic indicators improved in July. Industrial production increased on an annualised basis in both the manufacturing and extraction segments. Retail sales strengthened in both the food and non-food segments, but by less than in June. Rosstat published real wage growth data for June which showed an increase of 4.9% YoY.

Key macroeconomic indicators, YoY dynamics

June 2021 July 2021
Industrial production 10.2%* 6.8%
Manufacturing 7.6%* 3.4%
Extraction 13.7%* 11.6%
Retail sales 10.9% 4.7%
Food 4.3% 1.8%
Non-food 17.6% 7.4%
Real wages  4.9% Not available

*Data updated by Rosstat

The Central Bank of Russia (CBR) published monetary policy guidelines for the period until 2024

Base scenario 2021 2022 2023 2024
Inflation (end of the year) 5.7-6.5% 4.0-4.5% 4.0% 4.0%
GDP growth 4.0-4.5% 2.0-3.0% 2.0-3.0% 2.0-3.0%
Key rate (average) 5.5-5.8% 6.0-7.0% 5.0-6.0% 5.0-6.0%

The policy guidelines also included three alternative scenarios:

  • Worsening Pandemic scenario: This assumes new pandemic-fighting restrictions that will lead to decline in demand. In this case, the CBR believes it is reasonable to cut the key rate as early as H1 of 2022
  • Global Inflation scenario: This assumes the steadier acceleration of global inflation by 2022, which in turn will spur the CBR to tighten monetary policy
  • Financial Crisis scenario: This foresees how financial markets might respond to monetary policy normalisation in the US. As low rates have caused spikes in the debt burden, policy normalisation may provoke a credit crisis in certain countries. In the case, the CBR will substantially tighten monetary policy in early 2023.

To watch…

Rosstat is due to post inflation figures for August 2021

The CBR meeting is due to this week


Author: Marina Tsutskiridze, Investment Specialist

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

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