Russian Equities Weekly January 3–7, 2022: Russian equities under geopolitical pressure

Russian equity market dynamics

Last week, the Russian equity market underperformed the broader emerging markets (EM) index by 1.6%. 

This was mainly due to Russia-specific factors:

  • The tense situation in Ukraine remained in the spotlight. Markets are awaiting the key political meetings this week. On 10 January, representatives from Russia and the US are due to meet to discuss strategic stability and key geopolitical concerns, including the Ukraine situation. On 12 January, Russian representatives will meet with the NATO council, with NATO’s eastward expansion being among the key agenda items
  • Political unrest in Kazakhstan imposed additional pressure on Russian equities. Last week, Russia sent troops to the country at the Kazakhstan president’s request, which resulted in market nervousness. However, the market’s reaction was mild as Russia was acting in agreement with the CSTO[1] Neither the US nor Europe appeared to have a strong opposing opinion on the news.
  Week YTD
MSCI Russia 10/40 TR in USD -2.1% -2.1%
MSCI EM index TR in USD -0.5% -0.5%
Excess return -1.6% -1.6%
Due to Russia-specific factors* -2.8% -2.8%
Due to difference in sector structure* 1.3% 1.3%
MSCI EM HDY index TR in USD** 0.8% 0.8%
Key commodities***
Oil 5.7% 5.7%
Gold -0.7% -0.7%
FX
RUB/USD -0.7% -0.7%
RUB/EUR -0.9% -0.9%
* 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 36%; gold producers’ weight in the index is 9% (as at the end of December 2021)

Data as of 7 January 2022

TKB Investment Partners (JSC) calculations; Bloomberg

  Current
Upside/downside to fair price 28%
Data as of 7 January 2022

TKB Investment Partners (JSC) calculations

Main Russian news

OPEC+ have decided to go ahead with the scheduled 400 000 barrels per day increase in oil output in February 2022. The organization claims to have reduced its risk evaluation of the impact of the Omicron Covid variant and now assumes that its negative effects on oil prices will likely be soft and short-lived. Russia’s Deputy Prime Minister Alexander Novak expects oil demand to continue to recover in 2022, helped by the ongoing Covid vaccination programmes. He forecasts oil demand to reach pre-pandemic levels by the end of the year. The next OPEC+ meeting is scheduled for 2 February 2022.

 

To watch…

Rosstat is due to publish inflation figures for December 2021.

 

[1] The Collective Security Treaty Organization is an intergovernmental military alliance in Eurasia comprising six members: Armenia, Belarus, Kazakhstan, Kyrgyzstan, Russia and Tajikistan

Author: Aleksandra Kuznetsova, Investment Specialist

Sources: Vedomosti, Bloomberg, TKB Investment Partners (JSC); January 2022

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