Russian Equities Weekly September 6–10, 2021: CBR aims to put brakes on inflation with fifth consecutive key rate hike

Russian equity market dynamics

Last week, the Russian equity market underperformed the broader emerging markets by 0.4%.

This was mainly due to Russia-specific factors, although there was no specific news that could help us identify which particular Russia specific factors were mainly responsible for the underperformance.

  Week YTD
MSCI Russia 10/40 TR in USD -0.9% 20.9%
MSCI EM index TR in USD -0.5% 2.9%
Excess return -0.4% 18.0%
Due to Russia specific factors* -0.6% 8.3%
Due to difference in sector structure* 0.3% 9.7%
MSCI EM HDY index TR in USD** -0.4% 9.5%
Key commodities***
Oil 0.7% 42.3%
Gold -1.6% -4.9%
RUB/USD -0.6% 1.1%
RUB/EUR 0.0% 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 August 2021)

Data as of 10 September 2021

TKB Investment Partners (JSC) calculations; Bloomberg

Upside/downside to fair price 9%
Data as of 10 September 2021

TKB Investment Partners (JSC) calculations

Main Russian news

Russian inflation accelerated in August. The consumer price index (CPI) rose to 6.68% YoY after 6.46% YoY at the end of July. Food inflation rose to 7.7% YoY from 7.4% YoY in July, while non-food inflation increased to 8.0% YoY from 7.6% YoY the preceding month. Services inflation was almost flat at 3.8% YoY level. The Central Bank of Russia (CBR) forecasts inflation for 2021 to be between 5.7% and 6.2%. The Ministry of Economic Development expects inflation to be around 5% YoY at the end of the year.

The CBR raised its key rate by 25bp to 6.75%. This was the fifth consecutive hike aimed at taming inflation. The Bank said that Russia’s economy has already regained its pre-pandemic level and is progressing towards balanced growth. The regulator expects inflation to slow as soon as in the fourth quarter of 2021. In 2022, the Bank forecasts an inflation range of 4%-4.5%. At the same time, the CBR governor, Elvira Nabiullina, suggested that, depending on the inflation rate, the key rate may exceed 7% but that it would remain below 10%. The next CBR monetary policy meeting will be held on 22 October.

To watch…

Russia’s Duma elections are being held later this week.


Author: Aleksandra Kuznetsova, Investment Specialist

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

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