Russian Equities Weekly 11-15/03/2019

20.03.2019

The Russian equity market edged into the black last week, following a global rally: the MSCI EM index gained 2.7% and the MSCI World rose by 2.9% in US dollar terms. This was largely driven by the US-China negotiation progress and the Brent crude price rise of 2.1% in US dollar terms.

Driven by global rally


Week 

YTD

RTS Total Return (TR) in USD      

1.5%

12.3%

MOEX index TR in RUB

Composite

0.0%

4.8%

Blue Chip

-0.1%

5.5%

Small and mid-cap

-0.5%

2.8%

MOEX sector index TR in RUB

Financial Services

1.8%

10.3%

Metals & Mining

0.9%

4.3%

Power Utilities

0.7%

5.9%

Oil & Gas

-0.4%

0.2%

Consumer Goods

-1.0%

1.4%

FX

RUB/USD

2.4%

6.8%

RUB/EUR

1.5%

7.9%

Data as of March 15th, 2019
Sources: TKB Investment Partners (JSC) calculations; Bloomberg



Russian equity market dynamics


The Russian equity market edged into the black last week, following a global rally: the MSCI EM index gained 2.7% and the MSCI World rose by 2.9% in US dollar terms. This was largely driven by the US-China negotiation progress and the Brent crude price rise of 2.1% in US dollar terms. The OPEC production cuts and the US sanctions on Venezuela and Iran are keeping oil prices high for the foreseeable future.

Financials outperformed other sectors for the third consecutive week: Safmar Financial Investment and VTB Bank’s shares rose by 10.1% and 6.2% respectively.

The consumer goods sector underperformed. ROS AGRO and X5 Retail Group were the weakest dropping by 4.0% and 3.1% respectively.



Main Russian news


S&P Global analysts noted that rouble and the Russian economy as a whole now is less dependent on oil than it was several years ago.

For a long time, the rouble rose and fell in line with oil prices, but this consistent correlation has reduced. In 2018, oil prices rose but the rouble weakened, mainly due to state measures and international sanctions whereby the government diverts excess revenues when oil prices are above $40 per barrel to reserves, and invests these revenues in foreign assets. This meant Russia had a greater resistance to external market events. Currently, the central bank keeps high foreign currency and gold reserves. Fears of sanctions on government debt led to a drop of international investors’ shares in the government bond market in the latter half of 2018, putting pressure on the rouble. To further protect the Russian economy, S&P suggest an increase to net liquid state assets that still constitute less than 10% of GDP, and stimulate non-energy exports.

On March 15, the United States, the EU and Canada announced sanctions on a number of Russian individuals and companies in response to the conflict in the Kerch Strait.

The US sanctions target six Russian individuals, six defense firms operating in Crimea and two energy and construction companies. All companies are non-listed ones. The US Office of Foreign Assets Control noted that these measures freeze the property and interests in property of the designated individuals and companies and trading with them is not permitted. Canada declared that its new regulations impose dealings prohibition on 15 companies and 114 individuals and freeze their asset on its territory. The EU council added eight more Russian military officers and security service officials to the sanction list.

These sanctions have not had a material effect on the market as they seem to be immaterial for the Russian economy overall.



Author: Marina Tsutskiridze, junior investment specialist


To watch...


X5 Retail Group and FSK are due to publish full-year 2018 IFRS results

OPEC+ meeting in Baku on March 18th

Sources: Vedomosti, Bloomberg, OFAC, the European Council, Government of Canada, TKB Investment Partners (JSC); March 2019



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


Major RTS index constituents     Q1 2018     Q2 2018     Q3 2018     Q4 2018
     Lukoil 9% 1%  22.3% 18.8%
     Gazprom 9% -12.3% 29.2%  
     Sberbank 12% -4% 4.5% 14.1%
     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% -10.7%
     NLMK -4% 14% 12.3%  
     Moscow Exchange -7% -8%
4.2%  
     Magnitogorsk Iron & Steel -22% 6% 0% -20%
     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 March 15th, 2019

The above-mentioned companies are for illustrative purpose only, are not intended as solicitation of the purchase of such securities, and does not constitute any investment advice or recommendation