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.