Page 70 - RusRPTApr19

8.3 Stock market
8.3.1 Equity market dynamics
On the equity market, a number of SPOs has been carried out, after having no deals since August 2018, such as the sales in Norilsk Nickel and Evraz by Roman Abramovich and Alexander Abramov, the sale of minority stake TCS Group by Oleg Tinkov, and prepared SPO of meat major Cherkizovo. In the meantime the Finance Ministry also continued to place solid issues of domestic federal OFZ bonds.
A “wall of money” is headed for Emerging Markets (EM) after the US Federal Reserve bank decided to pause its interest rate tightening, but weak growth in China, Europe and the US have caused a sell off, especially in Russia.
The Russian stock market has seen a month of heavy outflows thanks to looming new US sanctions and yet another blow to its already battered investment image following the arrest of US fund manager Michael Calvey. Russia’s bond market, however, is benefiting from the renewed interest in emerging markets.
The stock volumes tracker, EPFR Global, released fund flows data through the week ending March 13 and found that Russia saw net outflows of circa $140mn from combined equity and bond fund flows in the reported week, compared to circa $30mn of outflows in the previous week.
EM sell off
That wall of money is expected to lift EMs in the longer term, but after strong inflows into emerging markets since the start of this year, the tide turned in the last week as there was a general sell off as investors remain caught between medium-term and short-term drivers.
“After a brief rally in January, emerging market currencies have been on the back-foot, a surprise given the dovish shift from the Fed and abating China-US trade tensions. We hear many explanations, ranging from tail risks like Brexit to investor caution after the EM sell-off in 2018. These things may play a role, but we see foreign investor positioning as the principal driver. After all, the backdrop to EM these days is a decade of ultra-easy G-3 monetary policy, which drove a wall of money to EM. Those flows have in some cases built up to large positioning overhangs, so that the same dovish shift from the Fed isn’t the positive impulse it once was,” the Institute of International Finance (IIF) said in a note.
Things are changing. Many of the emerging markets have already all-but emerged and so less sensitive to the swings in international capital flows. And fundamentals seem to count for less as politics is taking a bigger role. US president Donald Trump’s trade war with China and Russia’s sanctions war with the west have become more important than a blistering pace of economic growth or financial fortresses. But in Russia’s case it has always been the last of the BRICS to attack foreign capital and even then it has been in small amounts compared to its peers. Foreign positions in Russia’s stocks and bonds look very underweight compared to the other emerging markets, says IIF .
70 RUSSIA Country Report April 2019 www.intellinews.com