Russian equity market dynamics
Last week, the Russian equity market underperformed the broader emerging markets (EM) index by 4%.
This was due to both Russia-specific factors and the different sectoral structures of the two indices:
- Russia-specific factors: Political tensions between Russia and Ukraine continued to put pressure on the Russian equity market. The risk of military escalation as well as the risk of material sanctions is low, in our view. For more details read our recent flashnote
- Sector-specific factor: An additional negative effect came from Russia’s overweight in the energy sector as oil prices declined by almost 10%.
|MSCI Russia 10/40 TR in USD||-7.7%||13.0%|
|MSCI EM index TR in USD||-3.6%||-3.5%|
|Due to Russia-specific factors*||-3.7%||7.9%|
|Due to difference in sector structure*||-0.9%||8.5%|
|MSCI EM HDY index TR in USD**||-2.5%||4.0%|
|* 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 26 November 2021
TKB Investment Partners (JSC) calculations; Bloomberg
|Upside/downside to fair price||22%|
|Data as of 26 November 2021
TKB Investment Partners (JSC) calculations
Main Russian news
According to Rosstat, industrial production in October accelerated by 7.1% YoY from 6.9% YoY in September. This was mainly due to higher output from the minerals extraction segment, which rose by 10.9% YoY after 9.0% YoY growth in September. The segment was supported by the growth of oil and gas (8.9% YoY), and coal (9.1% YoY) production. The manufacturing segment rose by 4.5% YoY after a 5.1% YoY increase the previous month.
In November, Russian households’ inflation expectations for the next 12 months declined by one percentage point from the reading in October. Consumers currently expect prices to rise by 13.5% over the next year. The Central Bank of Russia (CBR) said the slight improvement was due to the rouble strengthening. The CBR expects inflation to reach 4%-4.5% in 2022 and remain at around 4% beyond that.
Rosstat is due to publish some key macroeconomic data for October 2021 later this week.
Author: Aleksandra Kuznetsova, Investment Specialist
Sources: Vedomosti, Bloomberg, TKB Investment Partners (JSC); November 2021