Russian Equities Weekly 24-28/09/2018

02.10.2018

For the second consecutive week the Russian equity market hit a record high in rouble terms. In US dollar terms, its performance was also solid, outpacing weaker global and emerging markets. The MSCI World and MSCI EM indices contracted by 0.7% and 0.3%, respectively, in US dollar terms.

Energised week


Week 

YTD

RTS Total Return (TR) in USD      

4.1%

8.1%

MOEX index TR in RUB

Composite

2.4%

22.8%

Blue Chip

3.2%

27.2%

Small and mid-cap

-2.0%

-10.1%

MOEX sector index TR in RUB

Oil & Gas

4.6%

48.1%

Power Utilities

0.5%

1.6%

Financial Services

-0.9%

-4.7%

Metals & Mining

-1.8%

14.8%

Consumer Goods

-5.1%

-10.0%

FX

RUB/USD

1.3%

-12.1%

RUB/EUR

2.3%

-9.0%


Data as of September 28, 2018
Sources: TKB Investment Partners (JSC) calculations; Bloomberg


Russian equity market dynamics


For the second consecutive week the Russian equity market hit a record high in rouble terms. In US dollar terms, its performance was also solid, outpacing weaker global and emerging markets. The MSCI World and MSCI EM indices contracted by 0.7% and 0.3%, respectively, in US dollar terms.

Last week, the Russian market was driven by the surge in oil prices. Brent crude rose by 6.1% in US dollar terms and exceeded USD 82 per barrel for the first time since 2014. This was in reaction to the decision of “OPEC+” not to increase oil output. The second round of US sanctions against Iran also contributed to positive investor sentiment. Investors expect Iran’s oil supply to drop by 0.5-1.0 million barrels per day after the sanctions come into effect. This is due to happen on 6 November.

Energy stocks outperformed. They benefited from the increase in oil prices in rouble terms.  The main gainers were Rosneft, Lukoil and Novatek, which rose by 11.9%, 6% and 4.9%, respectively, in rouble terms.

Consumer staples companies lagged the market. This was due to Magnit’s capital markets event. New company’s management announced its strategy, telling investors it would both transform its existing business and expand further. Many investors had largely expected the company to focus only on its operational turnaround. The market now doubts there will be a quick recovery of Magnit’s financials and expects competition between the major market players to heat up. As a result, shares in Magnit, X5 Group and Lenta dropped by 8.5%, 12% and 11%, respectively, in rouble terms.

 

Main Russian news


The US Ministry of Finance imposed sanctions on a further 12 Russian companies on 26 September. Most of the entities are scientific research institutes and manufacturers and are not publicly listed. In our view, the sanctions do not cause any major economic difficulties for Russia. Therefore, the news had no impact on the Russian market. The reason for the sanctions is that the companies could act against US foreign policy or national security interests. According to the US, some of them supported Russian hacking activities and some supported the Russian naval fleet or military space programmes. From now on, the US may not export goods and technologies to these companies. However, any decisions will likely be made on a case-to-case basis.

International rating agency Fitch shared its positive views on the Russian outlook:

  • It revised upward its forecast for Russian GDP growth in 2018. It now expects the economy to grow by 2% this year compared to its previous forecast of 1.8%. One reason is the resilience of the economy to external factors. In particular, Russia has one of the lowest state debts in the world. It could redeem outstanding debt if necessary and does not need to issue new bonds: at this point, the Russian budget is in surplus. This should eliminate any pressure from the US dollar on the economy.

  • Fitch does not expect sanctions against Russian state debt or Russian banks. The latter might negatively affect Russian citizens. According to the agency, this would contradict official US policy that it does not implement sanctions against ordinary people. Nonetheless, the risk of severe new sanctions remains. They might include restrictions on private sector access to international funding.



Author: Maria Rybina, investment specialist


To watch...


Rosstat is due to publish inflation figure for September on 5-8 October


Sources: Vedomosti, Tass, 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% -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