Russian Equities Weekly January 31 – February 4, 2022: In line with the broader EM

Russian equity market dynamics

Last week, the Russian equity market performed in line with the broader emerging markets (EM) index. A slight boost from the Russia-specific factor of an easing of sanctions fears was offset by the adverse impact of a sector factor. The Russian index’s underweight in the consumer discretionary sector put pressure on its relative performance as the broader EM index’s consumer discretionary sector rose by 6%.

  Week YTD
MSCI Russia 10/40 TR in USD 2.5% -9.5%
MSCI EM index TR in USD 2.5% -0.8%
Excess return 0.0% -8.6%
Due to Russia-specific factors* 0.5% -11.3%
Due to difference in sector structure* -0.5% 2.7%
MSCI EM HDY index TR in USD** 1.6% 1.7%
Key commodities***
Oil 5.5% 23.2%
Gold 0.9% -0.1%
FX
RUB/USD 3.0% -1.0%
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 8% (as at the end of January 2022)

Data as of 4 February 2022

TKB Investment Partners (JSC) calculations; Bloomberg

  Current
Upside/downside to fair price 40%
Data as of 4 February 2022

TKB Investment Partners (JSC) calculations

Main Russian news

The European Commission (EC) now considers gas and uranium as green energy. Last week, the EC presented a draft of the ‘green taxonomy’ project which is a part of the European Green Deal 2019. The document suggests that, for a transitional period, investments in gas and nuclear energy should be classified as green, like renewable energy, to help achieve carbon neutrality. For Russia, gas and nuclear energy in Europe remain key markets. According to Eurostat, as at 26 January, Russia remained the largest supplier of gas (both pipeline and liquefied) to the EU in 2021, with 46.8% of the market (after 43.9% in 2020). According to Gazprom Chairman, A. Miller, the largest Russian gas importers increased their purchase volumes in 2021: German and Italian gas imports rose by 10.5% and 20.3%, respectively. According to IEA forecasts, in 2022 Russian pipeline gas exports to European markets may reach 190–195 billion cubic metres.

OPEC+ members approved the increase of oil production by 400 000 barrels a day (b/d) from March. According to its January report, OPEC held its 2022 oil demand growth forecast at 4.2 million b/d on the back of moderate global economic growth. The oil surplus forecast was downgraded from 1.4 million b/d to 1.3 million b/d. The next production review is scheduled for 2 March. According to the plan, Russia will increase production by 100 000 b/d. This means that by the end of March, Russia can recover 90% of its production volume as of May 2020, when the OPEC+ limits were put in place.

In January, Russian people’s inflation expectations for 2022 eased off. According to the Central Bank of Russia (CBR), citizens expect inflation for the next 12 months to be 13.7%. This is lower than in December 2021, when they expected 14.8% inflation over the following year. However, the figure remains close to its maximum level. The CBR maintains its inflation forecast at 4%-4.5% for 2022.

Net inflows from Russian retail investors into the Russian equity market amounted to USD 1.3 billion (RUB 101 billion) in January. The number of individuals with brokerage accounts on the Moscow Exchange exceeded 17.4 million. Last month, more than 2.8 million retail investors made transactions, the highest number in Moscow Exchange’s history.

 

To watch…

Rosstat is due to post inflation figures for January 2022 and some key macroeconomic figures for December 2021 later this week.

The Central Bank of Russia will hold a monetary policy meeting on 11 February.

 

Author: Aleksandra Kuznetsova, Investment Specialist

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

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