Page 87 - RusRPTMay19

week before, which represents 11-weeks of outflows. There was also $8mn of outflows from Russia-dedicated bond funds.
Bonds have caught most of the attention this year with investors still largely ignoring the Russian equity market, according to Smolyaninov.
“For Russia-dedicated funds the reported fund flow data was almost the same as in the previous week – small inflows into the country-dedicated ETFs faced larger outflows from traditional funds,” the analyst said.
As bne IntelliNews has reported there has been a very sharp uptick in inflows into the Russian Ministry of Finance ruble-denominated OFZ treasury bills since the start of this year as sanctions fears recede. Foreign investors were overweight the high-yielding but rock solid OFZ last year, with the foreign share holding in total OFZ outstanding rising to 34% in April. But after the US imposed painful sanctions in the April 6 round of sanctions, particularly on oligarch Oleg Deripaska, they sold off some RUB500bn ($7.7bn) worth of OFZ and the foreign share fell to 25% as of the end of the year.
In the first quarter of this year all of that money has come back and the Ministry of Finance has held a series of record-breaking auctions and the foreign share in OFZ has risen to 30% again, according to Central Bank of Russia (CBR) data.
Russia has been withdrawing from the international capital market and sold off circa $100bn of US treasury bills last year, while at the same time it has been stockpiling gold. The Ministry of Finance has turned to the OFZ market to raise money it needs to run the country and the borrowing limits set in the budget have been more than doubled to around RUB2 trillion this year. Ironically, Russia is now increasingly dependent on foreign investors buying its OFZ to fund the government operations.
However, the sell off is already showing up in the CBR’s statistics in a notable downturn in April. In March foreign investors owned RUB1.9 trillion worth of OFZ from a total market of RUB7.4 trillion, or just shy of 30% of the total outstanding. But in April while the amount of OFZ that foreigners owned increased slightly to RUB2.0 trillion their overall share of the total of RUB7.7 trillion had slipped back to 26.7%, on a par with January 2017.
Part of what is depressing enthusiasm for Russian OFZ is the talk of sanctions has reappeared in Washington after senator Lindsey Graham renewed calls for more and more stringent sanctions on Russia in a speech last week. The US Congress is due to vote on a draft proposed Defending American Security Against Kremlin Aggression Act (DASKAA) sanctions in the first half of this year and there is a possibility that the new round of sanctions could target Russian sovereign bonds, including the OFZs.
Russia’s ministry of finance is on a tear as it got another no-limits bond auction for its ruble denominated OFZ treasury bills away setting a fresh record. In two fixed coupon OFZ auctions, Russian debt managers collected RUB124.6bn ($1.9bn) in total, Raiffeisen Bank (RZB) reports on April 19. “The long-maturity 15yr OFZ attracted almost RUB40bn, while the rest was sucked up by the 2024 paper. The favourable external backdrop (i.e. mainly in the form of more favourable G2 central bank backdrop) as well as a certain sanctions “fatigue” combined with recently improved Russian economic fundamentals (i.e. mainly faster than expected CPI growth moderation)
87 RUSSIA Country Report May 2019 www.intellinews.com