Page 74 - RUSRptSept18

8.3 Stock market
8.3.1 Equity market dynamics
Political tensions and the fears of new sanctions have led investors to sell Russian stocks for 15 weeks in a row. In the week ending August 1 non-residents sold another $10mn worth of Russian stocks, after selling $110mn the week before, finanz.ru reports.
Funds focusing exclusively on Russia sold $40mn worth of securities in the last week of August and $130mn in the last two, according to a review published by BCS Global Markets.
Funds invested into things like ETFs, which include Russian stocks in a basket, added $30mn in the same week, but not enough to bring the total inflows into the black.
Foreigners have been selling Russian shares for 15 weeks in a row this year, with the exception of one week at the start of July, according to BCS GM head of strategy Vyacheslav SmolyaniNovember
Money has left both from traditional Russian funds and through ETFs and EMs in general have been battered by the fears of a trade war with the US. Non-resident portfolio outflows from emerging markets rose to $8bn in June, following $6.3bn of outflows in May, according to the Institute of International Finance (IIF).
“As trade tensions mounted over the course of the month, we estimate that emerging markets saw net non-resident portfolio outflows of $8.0bn in June, split about evenly between debt (-$4.2bn) and equity (-$3.8bn) markets. This June figure caps off the weakest quarter since the end of 2016, with emerging markets facing a variety of headwinds. Most major EM regions were hit with outflows in June: Africa/Middle East (-$4bn); EM Asia (-$2.7bn); and Latin America (-$2.5),” IIF said in a note.
The upturn in net capital flows this year has been largely China-related. Despite rising trade tensions, China attracted more than $87 billion of net inflows in the first five months of the year.
Mexico and Turkey have seen a marked increase in net inflows this year, though not enough to finance Turkey’s large external financing needs, prompting further declines in official FX reserves. Outflows from Russia, Thailand and Czech Republic accelerated in May.
Aside from the spike in the oil price, Russia has no other significant drivers for stock prices at the moment, Smolyaninov says, and sentiment is entirely dominated by the possible imposition of “crushing” sanctions this autumn by the US Treasury Department (USTD).
The only positive for Russian shares is the exceptionally high dividend yields many stocks are paying. While the index remains range bound, individual names have done well as portfolio investors cherry pick amongst the best stories. At the end of last year, dividends had grown by 16% to RUB1.69 trillion ($27bn) , according to ACRA. Oil and gas corporations paid investors RUB711bn, metallurgy companies RUB455bn. However, it remains moot as to if companies can keep up their generosity.
“Corporations’ operational business has already exhausted the resources for further increases in the dividend payments,” ACRA warns: without a significant increase in the operational effectiveness, this may have a negative effect on
74 RUSSIA Country Report September 2018 www.intellinews.com