Russian Equities Weekly January 17–21, 2021: Sanction concerns continue

Russian equity market dynamics

Last week, the Russian equity market underperformed the broader emerging markets (EM) index by 4.2%. This was mainly due to Russia-specific factors.

Sanctions fears pressured the market as global headlines continued to speculate on the potential escalation of tensions between Russia and Ukraine. On 21 January, Russia’s Foreign Minister, Sergei Lavrov, met with US Secretary of State, Antony Blinken, to discuss security guarantees in Europe. The US is expected to give a written reply on Russia’s demands later this week.

We see the current drawdown as a good entry point for the Russian market. For more information, please see our latest flash note January 2022 Sanction fears – good entry point for the Russian market.

  Week YTD
MSCI Russia 10/40 TR in USD -5.3% -11.2%
MSCI EM index TR in USD -1.0% 1.0%
Excess return -4.2% -12.2%
Due to Russia-specific factors* -4.5% -13.8%
Due to difference in sector structure* 0.3% 1.6%
MSCI EM HDY index TR in USD** 0.0% 2.1%
Key commodities***
Oil 2.1% 13.8%
Gold 0.8% 1.8%
FX
RUB/USD -1.6% -3.4%
RUB/EUR -1.7% -3.4%
* 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 21 January 2022

TKB Investment Partners (JSC) calculations; Bloomberg

  Current
Upside/downside to fair price 38%
Data as of 21 January 2022

TKB Investment Partners (JSC) calculations

Main Russian news

Russia’s budget surplus in 2021 amounted to approximately USD 7 billion (RUB 514 billion). Budget revenues exceeded planned levels by 35% or USD 320 billion (RUB 25 trillion). Budget spending exceeded the plan by 15% (almost USD 320 billion). The National Welfare Fund (NWF) rose by USD 0.25 billion (RUB 20 billion) to during 2021. Currently, the fund total some USD 183 billion, which equates to 12% of Russia’s GDP. The liquid part of the fund stands at USD 114 billion or 7% of GDP.

 

Author: Aleksandra Kuznetsova, Investment Specialist

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

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