Russian Equities Weekly 10-14/09/2018

19.09.2018

The Russian equities market rose last week. The market’s surge in US dollar terms was mainly driven by the stronger rouble. It appreciated amid rising oil prices and supportive decisions by the Central Bank of Russia. The regulator increased its key rate by 25bp and prolonged a pause in purchasing foreign currency until the end of the year.

Moving to fair values


Week 

YTD

RTS Total Return (TR) in USD      

4.2%

-1.1%

MOEX index TR in RUB

Composite

1.7%

16.6%

Blue Chip

1.6%

20.1%

Small and mid-cap

0.6%

-11.5%

MOEX sector index TR in RUB

Financial Services

2.6%

-6.3%

Metals & Mining

2.1%

9.6%

Power Utilities

1.8%

-1.5%

Consumer Goods

0.7%

-6.5%

Oil & Gas

-0.1%

38.9%

FX

RUB/USD

2.9%

-15.3%

RUB/EUR

1.6%

-12.5%


Data as of September 14, 2018
Sources: TKB Investment Partners (JSC) calculations; Bloomberg


Russian equity market dynamics


The Russian equities market rose last week. The market’s surge in US dollar terms was mainly driven by the stronger rouble. It appreciated amid rising oil prices and supportive decisions by the Central Bank of Russia. The regulator increased its key rate by 25bp and prolonged a pause in purchasing foreign currency until the end of the year.

Sberbank’s share value rose by 7.9% in rouble terms, driving the performance of the financial services sector. The stock had been under pressure due to the recent discussions of new US sanctions against Russian banks. Meanwhile, the bank’s fundamentals remain strong.

The performance of the energy sector remained mute and lagged the broader market. The appreciation of the rouble offset the positive effect of rising oil prices. However, Novatek did not avoid a correction and underperformed: its shares fell by 5,5% in rouble terms. Investors took profits after the stock had surged by 56% since the end of May, mainly boosted by positive corporate news.


 

Main Russian news


The Central Bank of Russia (CBR) made two decision on Friday, 14 September:

  • It raised the key rate by 25 basis points to 7.5%. The regulator made the decision as inflation risks had materialized. The risks of new sanctions and overall negative trends in emerging markets caused capital outflows from Russia. This resulted in the rouble depreciating; it has weakened by 18% since April. The CBR also took into account the upcoming increase in value-added tax. These factors might put pressure on inflation expectations, and inflation. The CBR revised upward its annual inflation forecast to 3.8%-4.2% by year-end, compared to previous figures of 3.5%-4%. It also raised its inflation forecast for 2019 to 5%-5.5% from 4%-4.5%.
  • The CBR prolonged its pause in purchasing foreign currency to the end of the year. The CBR had previously made large currency purchases on the domestic market in line with the budget rule. It states that the difference between the market oil price and USD 40 per barrel should be transferred to international reserves. As the result, they had increased by USD 30 billion since the beginning of the year. The CBR put this buying operation on hold in August to restrain the volatility in financial markets. The decision to prolong the pause in purchasing should provide further support financial and currency exchange markets.

Russia hosted IV Far East Economic Forum in Vladivostok. There were six thousand delegates from 60 countries. The most numerous delegates came from China and Japan, represented by 1 096 and 570 people, respectively. Within three days the participants signed 220 contracts amounting to some USD 45 billion. The major deals were made in the spheres of agriculture, energy and IT. One such deal was between Russian Direct Investment Fund, Alibaba Group, Megafon and Mail.Ru Group. The companies agreed to establish a joint venture to develop a leading e-commerce platform in Russia and the former Soviet Union countries.



Author: Maria Rybina, investment specialist


To watch...


No major macroeconomic or corporate news expected in the coming week.


Sources: Vedomosti, cbr.ru, TKB Investment Partners (JSC); as of September 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%          TBA

* 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