Page 54 - UKRRptMar19

the hat trick of investment grade ratings from the leading ratings companies.
Russia’s equity market has been range bound with the dollar denominated Russia Trading System (RTS) oscillating around the 1,000 market since Russia annexed the Crimea in 2014, although the market did re-rate in 2016, returning 50% y/y, after investors became convinced the sanctions regime would not get much worse. While there have been some stellar returns to be made at the corporate level as the crisis caused a consolidation in many sectors, the overall market has remained the preview of the brave and inflows have been depressed from boom-year levels.
That said, Russia-dedicated funds managed to attract circa $30mn in last week, largest inflows since mid-October, vs $1mn outflows in the previous week, BCS reports.
“Finally, Russia-dedicated funds got some new money last week, while inflows into GEM funds continued at a solid pace. This made overall inflows into Russian stocks almost reaching $200mn, largest weekly intake since April last year. However, this was still well below the overheated start of 2018 when weekly inflows were roughly twice as big. The beginning of the year was outstanding for EM assets, including Russia, so some pull back would be healthy at this stage. However, we remain tactically positive still,” Smolyaninov said.
A combined circa $190mn flowed into Russian bond and stock funds last week, up from $160mn in the previous week, which is the biggest inflow since last April, says Smolyaninov.
Bonds remain the favoured vehicle, which also suggests that the recovering of sentiment remains early in the cycle as interest bonds typically leads equities by months, and even years, when Russia is recovering from one of its periodic crises.
The flows into Russia are set against the backdrop of rising enthusiasm for EM assets. The combined inflows into EM bond and stock funds was the highest in the last two years, according to EPFR Global’s data.
The RTS closed at 1,218 at the end of January was trading at 1,194 as of February 12, which is a 14% gain year to date. Its sister index, the ruble denominated Moscow Exchange Index (MOEX), was up 7% year to date as of the middle of February.
Using bne IntelliNews’s rule of thumb that the RTS index level should be simply x20 the price of Brent oil then the market is currently over valued by about 80 points. However, the average price of oil in January was $56.6, which compared to last year is low. Analysts don't expect oil prices too fall from here, but depending on Russia’s continued participation in the OPEC+ oil production cut deal (the next meeting with OPEC is scheduled for May) then the price of oil could increase as the year wears on.
54 UKRAINE Country Report March 2019 www.intellinews.com