Page 57 - RusRPTJul19

American currencies and is betting on further gains for the Indian rupee. Ruble gained 9% year-to-date against the US dollar so far in 2019, while the
Finance Ministry is selling record-high quantities of OFZ federal ruble bonds.
Bloomberg reminds that the call on EM currencies comes amid world’s biggest central banks are switching to a more accommodative stance, fuelling demand for riskier assets and despite the geopolitical tensions building up to this week’s G20 meeting.
As far as Russia is concerned, in the past sanction scenarios have been provoked by the meetings of the US and Russia's presidents Donald Trump and Vladimir Putin, with another meeting anticipated at G20.
At the same time bad news might be a deterrent for investment after all, as a separate report by the Financial Times cites a study by Ashmore Group which claims that unfavourable news environment was the best time to invest in EM. The study found that EM investments yielded 10pp higher returns given the unfavourable news environment, such as 2001 crisis in Argentina, or Venezuelan default fears in 2017.
This summer, Russian companies, predominantly exporters, will pay record dividends. In Sberbank CIB base scenario, this will have a slightly positive impact on the ruble, though if risk-off strikes global markets, this support will prove to be stronger and help the ruble to outperform peers. This process will also put FX liquidity under temporary pressure.
Exporters are set to pay $20bn in dividends by the end of this period, and we expect them to fund around 70% of this sum, or $14bn, by selling FX. This will outstrip dividend-related FX buying by DR issuers and foreign strategic investors by about $2.6bn, according to our calculations. All else being equal, dividend season should therefore be slightly positive for the ruble.
However, EM FX could come under increased pressure from any escalation in the US-China trade war or further signs of a global economic slowdown. In this scenario, the ruble would likely retreat, though exporters might ramp up FX sales by even more than we currently anticipate. We would therefore expect the ruble to exhibit relative resilience and outperform its peers. Even if EM currencies were to fall significantly, we would expect $/RUBto find a ceiling around the 66-67 area over the next few months.
FX liquidity is set to deteriorate over the period due to seasonal weakness in the current account, with dividends contributing to this weakness. But FX liquidity is fairly abundant right now, so this should have only a modest impact on the FX swaps market. FX liquidity should recover in 4Q thanks to favourable seasonality.
57 RUSSIA Country Report July 2019 www.intellinews.com