Russian Equities Weekly October 18–22, 2021: Key rate rises by 75bp to 7.5%

Russian equity market dynamics

Last week, the Russian equity market underperformed the broader emerging market (EM) index by 0.8%.

This was due to the difference in sector structures of the two indices, mainly the overweight in energy and materials. These sectors fell by 2.8% and 2.2% in the EM index, respectively. Russia-specific factors partially offset the impact from the sector-specific factors. These mainly concerned greater investor optimism over stronger Russia-EU energy cooperation in the face of the energy crisis in Europe.

  Week YTD
MSCI Russia 10/40 TR in USD 0.0% 32.2%
MSCI EM index TR in USD 0.7% 2.0%
Excess return -0.8% 30.3%
Due to Russia specific factors* 1.3% 17.4%
Due to difference in sector structure* -2.1% 12.9%
MSCI EM HDY index TR in USD** 0.0% 8.2%
Key commodities***
Oil 0.1% 66.1%
Gold 2.0% -4.2%
FX    
RUB/USD 0.6% 5.0%
RUB/EUR 0.0% 9.9%
* See details of methodology at the end of the report

**MSCI Emerging Markets High Dividend Yield Index

*** We use Brent Oil and LBMA Gold, in USD terms. Energy weight in the MSCI Russia 10/40 is 41%; gold producers’ weight in the index is 8% (as at the end of September 2021)

Data as of 22 October 2021

TKB Investment Partners (JSC) calculations; Bloomberg

  Current
Upside/downside to fair price 7%
Data as of 22 October 2021

TKB Investment Partners (JSC) calculations

Main Russian news

The Central Bank of Russia unexpectedly raised its key rate by 75bp to 7.50%. The market had expected a 25-50bp increase. The bank noted that inflation continued to exceed its forecast substantially and now it is expected to be at 7.4-7.9% at the end of 2021. Based on the CBR’s latest forecast, inflation will edge down to 4.0-4.5% in 2022 and remain at close to 4% later. CBR Governor E. Nabiullina said that the new forecast suggested the average key rate would be at 7.3-8.3% in 2022, and at 5.5-6.5% in 2023.

 

To watch…

Rosstat is due to publish industrial production figures.

 

Author: Marina Tsutskiridze, Investment Specialist

Sources: Vedomosti, Bloomberg, TKB Investment Partners (JSC); October 2021

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