Page 66 - RusRPTFeb20
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Russia-dedicated ETFs were $57mn and this was the key driver behind the negative reading for Russia-specialized funds last week, reports BCS GM.
“Investors were apparently taking profits after the last two months’ excellent rally. At the same time, as we suspected, the massive inflow campaign in GEM equity funds ended abruptly last week due to the spread of the coronavirus fears. Yet, global EM funds still reported net positive, albeit minor, $235mn inflows,” Smolyaninov said. “We expect EM equities will not be able to attract new money in the next several weeks and see further downside risks for the Russian market.”
The situation for bond investors is a bit different given Russia’s excellent macro fundaments and falling inflation and interest rates.
“Bond investors want to wait and see. Fixed income markets have stronger inertia and are less speculative than equities. Subsequently, last week, investors simply stopped putting new money to work, waiting for further global developments to assess potential economic damage,” Smolyaninov said. “Inflows into Russia bond funds stalled, while the GEM bond fund category attracted minor a $162mn after almost $10bn of new money in the six previous weeks. We see downside on this front in the weeks to come as well.”
In 2019 liquid equity names, state bonds, and precious metals yielded the highest returns on investment in Russia of up to 80%, 25%, and 30%, respectively, while non-liquid equities and currencies have yielded negative returns, calculations by Vedomosti d aily of January 13 show.
As reported by bne IntelliNews, Russian equity market was top performer globally. Moscow Exchange ruble index was up by 28.6%, while the RTS US dollar index increased by 44.9%.
Out of 260 traded equities less than 30% of the shares declined in price, being mostly unpopular papers with low liquidity. The sharpest price increase was seen for the shares of 36.6 pharmacy chain (139%), although analysts surveyed by Vedomosti attribute the growth to a short-lived bump.
SharesofAFKS istemaincreasedby90%,Surgutneftegasby88%,Russian Grids by 78%, Gazprom by 67%, while the ordinary shares of Sberbank increased by 37% and preferred by 60%.
The analysts expect Russian equity market to expand by 10-15% (MOEX Russia index), fuelled by inflow of local investors seeking better yields (estimated inflow of RUB1 trillion in 2019) and high dividends on Russian equity names.
In the meantime, the index for Russian sovereign bonds RGBITR in 2019 gained 19.99%, with the corporate bonds index gaining 14.3%. The interest rate cutting cycle resumed by the central bank, as well as the inflow of foreign investors supported the OFZ federal bonds market. 10-year OFZ yielded total return (including coupon) 27%, while corporate 4-6 year bonds of top issuers 17-23% (such as Sberbank, Gazprom Neft, Russian Railways (RZD), Post of Russia, and others).
The ruble bonds are unlikely to yield as much in 2020, the analysts believe, as market participants have already priced in the expectations of key interest rate being cut to 5.75%-6%.
Precious metals, such as gold, silver, and platinum yielded high returns, as increase in global prices (18%, 15%, and 22%, respectively) led to price increases of ruble non-cash accounts of 6%, 4%, and 10%, respectively. Palladium jumped by 54% in 2019 and by 35% on Russian non-cash accounts.
66 RUSSIA Country Report February 2020 www.intellinews.com
