Russian Equities Weekly November 8–12, 2021: Underperformance due to geopolitics

Russian equity market dynamics

Last week, the Russian equity market underperformed the broader emerging markets (EM) index by 4.1%.

This was due to both a Russia-specific factor and the different sectoral structures of the two indices.

  • Russia specific factor: the Russian market was affected by increasing tensions with the EU. Investors were concerned by widespread media headlines regarding the alleged Russian involvement in the Belarusian-Polish border situation and military movements on the Russian-Ukrainian border. There were also concerns regarding gas flows between Russia and the rest of Europe
  • Sector specific factor: The energy sector was hit by the steep fall in oil prices at the end of the week. This put pressure on the Russian market as it is overweight in this sector.
  Week YTD
MSCI Russia 10/40 TR in USD -2.4% 27.0%
MSCI EM index TR in USD 1.7% 1.4%
Excess return -4.1% 25.6%
Due to Russia-specific factors* -3.5% 14.7%
Due to difference in sector structure* -0.6% 10.9%
MSCI EM HDY index TR in USD** 2.2% 7.4%
Key commodities***
Oil 0.0% 61.2%
Gold 3.3% -1.4%
FX
RUB/USD -2.2% 1.6%
RUB/EUR -0.8% 8.1%
* 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 38%; gold producers’ weight in the index is 9% (as at the end of October 2021)

Data as of 12 November 2021

TKB Investment Partners (JSC) calculations; Bloomberg

  Current
Upside/downside to fair price 8%
Data as of 12 November 2021

TKB Investment Partners (JSC) calculations

Main Russian news

According to the Ministry of Finance, the 2021 plan for federal budget revenues was exceeded during first 10 months of the year. In January-October, the budget was carried out with a RUB 2 trillion (USD 28 billion) surplus. Budget revenues have already exceeded the total volume for the year by 9%, and amounted to RUB 20 trillion (USD 280 billion). During this period, 85% of the spending plan for 2021 was fulfilled, amounting to RUB 18 trillion (USD 250 billion).

Among the reasons for the strong inflow of revenues were higher oil prices, a spending recovery on the back of the pandemic easing, and imports increasing, after having come under pressure from the effects of the pandemic.

To watch…

Rosstat is due to publish preliminary figures for Q3 2021 GDP growth.

 

Author: Aleksandra Kuznetsova, Investment Specialist

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

Download a full version of the article in PDF format

 

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