Page 16 - RusRPTJune18

If, on the other hand, the average price stays at $60 for the rest of the year – which seems more likely -- then the budget will receive an extra RUB3 trillion of revenues and easily meet its spending needs.
The other point of interest in the strong price of oil is that it has had no affect on the stock market. In the past the value of the leading RTS index was intimately tied to the price of oil. bne IntelliNews explored this dependence in depth in an article “ What is the fair value for Russia’s equity market? ” and the RTS index should be roughly x20 the price of oil in what is a remarkably robust relationship.
This dependence has been so strong that the RTS keeps going through super cycles that are related to the cyclical nature of the commodities market and the fifth such super cycle is currently underway . The dependence on oil has meant that a “buy-and-hold” strategy never works in Russia, but for investors that get their timing right the market can delivery stellar returns.
But this relationship has broken down recently. As the chart below shows while prices have soared this year the RTS has fallen and according to the x20 oil rule of thumb is currently some 200 points under valued. The selling began with fears of new US sanctions during the publication of the so-called Kremlin Report in January , but got worse with the actual imposition of really painful sanctions in April .
Currently the value of the RTS is suppressed by geopolitical tensions, but what that means in practice is any easing of the tensions between Washington and Moscow should result in a strong stock market rally. That has already happened once in 2016 when the RTS gained 50% in a year, but don't hold your breath for it to happen again anytime soon.
2.8 Gazprom spent $93bn on pipelines, says analyst
Sberbank analysts have produced another controversial report. This time the bankers report on contracts signed with state-owned Russian natural gas behemoth Gazprom and firms owned by stoligarchs and president Vladimir Putin close personal friends Gennady Timchenko and Arkardy Rotenburg.
The report claims the cost of construction contracts to build gas of exports pipelines such as Power of Siberia (Sila Sibiri), Nord Stream 2 and Turkish
16 RUSSIA Country Report June 2018 www.intellinews.com