Russian Equities Weekly 10-14/12/2018

19.12.2018

The Russian equity market contracted last week following the global downward trend: the MSCI World index fell by 1.1% in US dollar terms. Russian equities underperformed its emerging market peers, as the MSCI EM index fell only slightly, by 0.9% in US dollars. The underperformance was mainly due to the correction in oil prices: the price for Brent crude declined by 1.6%. Additionally, the Central Bank of Russia hiked its key rate by 25 bp.

Under pressure


Week 

YTD

RTS Total Return (TR) in USD      

-3.6%

2.0%

MOEX index TR in RUB

Composite

-2.7%

18.3%

Blue Chip

-2.9%

22.3%

Small and mid-cap

-2.1%

-14.9%

MOEX sector index TR in RUB

Metals & Mining

-0.5%

17.3%

Consumer Goods

-1.0%

-12.5%

Power Utilities

-1.5%

-5.8%

Financial Services

-2.4%

-14.1%

Oil & Gas

-3.2%

41.5%

FX

RUB/USD

0.1%

-13.1%

RUB/EUR

0.0%

-8.3%

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



Russian equity market dynamics


The Russian equity market contracted last week following the global downward trend: the MSCI World index fell by 1.1% in US dollar terms. Russian equities underperformed its emerging market peers, as the MSCI EM index fell only slightly, by 0.9% in US dollars. The underperformance was mainly due to the correction in oil prices: the price for Brent crude declined by 1.6%. Additionally, the Central Bank of Russia hiked its key rate by 25 bp.

The metal and mining sector outperformed mainly thanks to the stocks of Norilsk Nickel, Polyus Gold and Polymetal International. Their share prices rose by 3.3%, 3% and 2.3% respectively in rouble terms. There was no particular news in respect of Norilsk Nickel to support its performance. Meanwhile, gold producers Polyus and Polymetal likely benefited from the gradual recovery in gold prices, which have risen by 3.8% in US dollar terms since the end of September.

Oil and gas companies lagged the other sectoral indices. The ordinary shares of Tatneft, and stocks of Gazprom and Rosneft fell the most: by 6.4%, 4.7% and 4.8% respectively in rouble terms. Investors likely continued to take their profits in energy stocks, which have been the top-performers year-to-date.



Main Russian news


The Central Bank of Russia (CBR) decided to increase the key rate by 25 bp to 7.75%. The regulator is aiming to prevent any adverse effect from possible external and internal risks on inflation and inflation expectations. External risks include further volatility in oil prices and potential capital outflows from emerging markets. The main internal risks are the uncertainty of the potential effect of the increase in value-added-tax in 2019 and the decision of the CBR to resume regular foreign currency purchases in the domestic market from 15 January 2019. The purchases were put on pause from August until the end of the year. Considering all these factors, the CBR kept its inflation forecast unchanged: it should end up within the range of 3.9%-4.2% in 2018, reach its peak of 5%-5.5% in 2019 and then slow to 4% in the first half of 2020.

The US Department of the Treasury extended the date for the sanctions against EN+, Rusal and Gaz Group to come into effect from 7 January to 21 January 2019. The companies were included in the Specially Designated Nationals (SDN) list in April because they are under the control of Oleg Deripaska, who was himself included in the sanction list. The sanctions imply that the three companies’ counterparts worldwide should cease their business operations with them. Meanwhile American investors should sell all the shares or bonds of those companies if the own any. This was the seventh time the sanctions have been postponed as the companies are negotiating changes in control and a reduction of Deripaska’s stake in them.



Author: Maria Rybina, investment specialist


To watch...


Rosstat is due to release macroeconomic figures for November 2018.


Sources: Rosstat, Vedomosti, Bloomberg, TKB Investment Partners (JSC); December 2018


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


Major RTS index constituents     Q1 2018     Q2 2018     Q3 2018
     Lukoil 9% 1%  22.3%
     Gazprom 9% -12.3% 29.2%
     Sberbank 12% -4% 4.5%
     Novatek 13% 6% 20.5%
     Tatneft 8% 33.7% 41.2%
     Magnit -12% -19% 12.4%
     MTS -8% -8% 13.6%
     VTB 170% 7% -90.7%
     Alrosa 64% 13% -10.9%
     Severstal -14% 14% 0%
     NLMK -4% 14% 12.3%
     Moscow Exchange -7% -8%
4.2%
     Magnitogorsk Iron & Steel -22% 6% 0%
     Phosagro -31% -45% -8%
 
* 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 December 14, 2018