Russian Equities Weekly January 24–28, 2021: Sanctions fears ease

Russian equity market dynamics

Last week, the Russian equity market outperformed the broader emerging markets (EM) index by 3.7%. This was due to both Russia-specific factors and the different sectoral structures of the two indices.

  • Russia-specific factors: Russia received a written response to its security guarantees proposals. However, as expected, there was no agreement on the main demand – that NATO should not expand eastward. The EU and the US continued to discuss potential sanctions, but media headlines indicate disagreement between countries on this issue. The list of potential sanctions no longer includes measures against Russia’s oil and gas exports, according to the Wall Street Journal last week. Additionally, Ukraine President Volodymyr Zelensky said he does not see any greater threat from Russia now than during a similar massing of troops last spring and asked the West not to create panic
  • Sector-specific factor: Further support came from Russia’s overweight in the energy sector as oil prices moved higher, and the underweight in the consumer discretionary sector, which fell by 10% in the EM index.
  Week YTD
MSCI Russia 10/40 TR in USD -0.5% -11.7%
MSCI EM index TR in USD -4.3% -3.3%
Excess return 3.7% -8.4%
Due to Russia-specific factors* 2.2% -11.5%
Due to difference in sector structure* 1.5% 3.1%
MSCI EM HDY index TR in USD** -1.9% 0.2%
Key commodities***
Oil 2.6% 16.7%
Gold -2.7% -1.0%
FX
RUB/USD -0.5% -3.9%
RUB/EUR 1.8% -1.7%
* 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 28 January 2022

TKB Investment Partners (JSC) calculations; Bloomberg

  Current
Upside/downside to fair price 38%
Data as of 28 January 2022

TKB Investment Partners (JSC) calculations

Main Russian news

The Central Bank of Russia (CBR) announced a pause in the purchase of foreign currency under the budget rule. Under this rule, the CBR purchases foreign currency on additional oil and gas revenues when oil is trading at above USD 44.2 per barrel. With the current high oil prices, such a move could reduce volatility, allowing the Russian equity market to rise moderately and the Russian rouble to strengthen. However, geopolitical fears have put strong pressure on the rouble, which has led to its noticeable decline. In this situation, the central bank decided to suspend the purchase of foreign currency, which is likely to help stabilise the rouble.

 

Author: Marina Tsutskiridze, Investment Specialist

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

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