Russian Equities Weekly 08-12/10/2018

18.10.2018

The Russian equity market (-0.9%) outperformed both the MSCI EM (-2%) and MSCI World (-4.1%) indices last week. This was to a large extent due to a better performance on 10-11 October when global markets experienced turmoil. Even a drop in the price of oil over those two days could not materially dent the Russian market’s resilience.

Resilience to global turmoil


Week 

YTD

RTS Total Return (TR) in USD      

-0.9%

4.2%

MOEX index TR in RUB

Composite

-1.3%

20.1%

Blue Chip

-1.5%

24.0%

Small and mid-cap

-1.7%

-12.0%

MOEX sector index TR in RUB

Metals & Mining

-0.2%

13.9%

Financial Services

-0.8%

-8.5%

Oil & Gas

-1.4%

46.8%

Consumer Goods

-2.2%

-13.3%

Power Utilities

-2.8%

-2.0%

FX

RUB/USD

0.5%

-13.0%

RUB/EUR

0.8%

-9.0%


Data as of October 12, 2018
Sources: TKB Investment Partners (JSC) calculations; Bloomberg


Russian equity market dynamics


The Russian equity market (-0.9%) outperformed both the MSCI EM (-2%) and MSCI World (-4.1%) indices last week. This was to a large extent due to a better performance on 10-11 October when global markets experienced turmoil. Even a drop in the price of oil over those two days could not materially dent the Russian market’s resilience. In our view, this is because the Russian market is now a strong value story: high dividend yields, low debt and material upside scope relative to fair value levels (according to our estimates). Global growth stocks were in the eye of last week’s market storm.

The metals & mining sector held its ground as gold producers stood firm. Higher gold prices helped Polymetal International and Polyus Gold end the week in the black.

Power utilities lagged other sectors. There is a lack of attractive value stocks in this sector. Consequently, it was harder for the sector to hold its ground during the global turmoil than for other sectors. 


 

Main Russian news


The Russian federal budget surplus stood at 3.5% of GDP for January-September 2018 vsa deficit over the same 2017 period. The improvement is mainly due to 28% YoY growth in revenues, helped by record oil prices in rouble terms. Improved tax collection in non-oil segments also contributed to the revenues growth. Expenditures were under control, growing by only 2% YoY. The Ministry of Finance expects the full-year 2018 budget to be in surplus.

The current account surplus amounted to USD 75.8 billion for January-September 2018, almost four times the USD 19.7 billion for the same period last year. This improvement was to a large extent the result of the sharp rise in net exports to USD 136.3 billion from USD 80.4 billion in the year-ago period. The weaker rouble put pressure on import growth. Exports in USD terms were lifted by higher prices for the main commodities.

The government approved the infrastructure development plan for 2018-2024. The aim is to boost infrastructure in many ways:

Reduce the time it takes to transport goods from the western to the eastern border to seven days from nine days at the moment

Build 301 km of high-speed rail tracks

Target place 50 in the Logistic Performance index ranking versus 75 at the moment

The other 23 plans relate to transport infrastructure and five goals relate to energy infrastructure.




Author: Egor Kiselev, Head of investment marketing


To watch...



Severstal is due to publish its Q3 IFRS results. Rostat will announce key macroeconomic indicators for September.


Sources: Kommersant.ru, Ministry of Finance, TKB Investment Partners (JSC); as of October 2018



Quarterly results: Actual vs. consensus for EPS, adjusted (US dollars)*


Major RTS index constituents     Q1 2018     Q2 2018
     Lukoil 9% 1% 
     Gazprom 9% -12.3%
     Sberbank 12% -4%
     Novatek 13% 6%
     Tatneft 8% 33.7%
     Magnit -12% -19%
     MTS -8% -8%
     VTB 170% 7%
     Alrosa 64% 13%
     Severstal -14% 14%
     NLMK -4% 14%
     Moscow Exchange -7% -8%
     Inter RAO 53% 52%
     Magnitogorsk Iron & Steel -22% 6%
     Phosagro -31% -45%

* based on Bloomberg consensus

TBA – to be announced

  Actual figure is better than consensus by more than 5%
  Actual figure is worse than consensus by more than 5%
  The deviation of actual results from consensus is between -5% and 5%

Source: Bloomberg, TKB Investment Partners, data as of August 31, 2018