Last week, the Russian equity market contracted by less than emerging markets (EM) overall. The RTS index fell by 2.7%, while the MSCI EM index dropped by 4.5% (all figures in US dollar terms). The import tariffs hike on Chinese products by the US, and the failure of the latest round of trade negotiations between the US and China led to a general contraction on global equity markets. Russia was less affected than EM on average due to the relatively small impact of the trade war news on oil prices and the generally healthy fundamentals of most Russian companies in the index.

  Week YTD
RTS Total return (TR) in USD -2.7% 14.2%
MOEX index TR in RUB    
Composite -2.5% 6.7%
Blue chip -2.5% 8.2%
Small and mid-cap -1% 5.2%
MOEX sector indices TR in RUB    
Power Utilities -0.6% 9.1%
Financial Services -1.3% 9.9%
Consumer Goods -1.8% 6.8%
Metals & Mining -2.2% 0.9%
Oil & Gas -2.9% 1.9%
FX    
RUB/USD 0.3% 6.8%
RUB/EUR -0.7% 8.8%

Data as of May 10, 2019
TKB Investment Partners (JSC) calculations; Bloomberg

Local demand-oriented sectors performed better than exporters as the latter have a higher exposure to the potential consequences of a US-China trade war. Russia’s federal budget rules significantly limit the impact of oil price fluctuations above USD 40 per barrel on domestically oriented companies. For more details on this, please refer to page five of the white paper “Russian equities: slow growth means higher yields”.

Main Russian news

Inflation in Russia slowed to 5.2% YoY as at the end of April from 5.3% YoY at the end of March. This was mainly due to lower inflation in non-food products and in services. Non-food inflation slowed to 4.5% YoY vs. 4.7% YoY. Services inflation dipped to 5% YoY vs. 5.1% YoY. 5.2% is the upper bound of the Central Bank of Russia’s expected range for inflation in 2019. The lower bound is 4.7%.

Russia the largest wheat exporter in the world for the third year in a row

There is also a potential driver for inflation to slow further this year as Russia’s wheat crop is likely to be the second-largest in its history, according to a forecast by the United States Department of Agriculture (USDA). The USDA expects that Russian wheat output will be 77 million tonnes, which could make Russia the largest wheat exporter in the world for the third year in a row. As a good harvest can help to slow inflation, it would mean an increased probability of the Russian Central Bank starting to cut rates again.

The first IPO of a Russian company in the US since the start of sanctions in 2014 took place on 9 May.HeadHunter – the largest provider of online recruiting services in Russia – placed 32% of its capital for USD 220 million on NASDAQ. It placed 16.3 million of its American Depository Receipts (ADR) at USD 13.5 each – the upper range of the price guidance. At that price, the market capitalisation of the company was USD 675 million. By the end of the week, it had risen by 24% to USD 837 million. HeadHuntercontrols more than 50% of the online recruitment sector in terms of the number of jobs in its database and by revenue.

To watch…

There is no significant news scheduled for this week.


Author: Egor Kiselev, Head of International Business & Investment Marketing

Sources: Vedomosti, Bloomberg, USDA, TKB Investment Partners (JSC); May 2019

Russian-Equities-Weekly-13-May-2019

Categories: Market Pulse