Page 28 - bneMag bne_December 2020_20201201

28 I Cover story bne December 2020
Russia’s Santa rally will get a corona boost this year and maybe more
However, the frenetic buying and selling was not very visible in the indices as there was almost as much selling of stay-at-home stocks as buying of back-to-work stocks leaving the index more or less unchanged. The RTS index rose from around 1,100 to around 1,250 over the first two weeks of November as a result,
a nice, but not remarkable, increase.
After being almost flat following the sell-off in March, there is now a very clear recovery kick at the end of the RTS index chart.
Game of two halves
There are now four viable vaccine contenders including Russia’s Sputnik V that will start to be distributed
in December. The main body of inoculating the general population
is expected to start in about April
and by the second half of next year the pandemic should fade away.
Investors were shorting stocks that were likely to be adversely affected
by the pandemic, while they had
taken long positions in things like the leading IT firms like Yandex and Mail. ru as well and the best retail companies like X5 Retail Group and Magnit .
Commodities in particular were hard hit and the oil & gas sector is still some 30% down year to date. However, consumer stocks and metallurgy
went back in the black in July, lifted by the booming e-commerce trade and strong sales amongst Russia’s leading supermarkets that have come through the pandemic largely unscathed. Indeed as bne IntelliNews has reported e-commerce is booming and the leading players in the retail sector have actually seen sales grow.
Russian assets saw strong $320mn inflows from combined equity and bond fund flows in the second week of November compared to $255mn in the previous week, largest two-week inflows since January. For much of the preceding months the Russian markets have seen outflows or at best anaemic inflows on the order of a few tens of millions of dollars at best.
Ben Aris in Berlin
The Russian equity market usually enjoys a rally between September and the end of the year that
often returns about 20% to investors, known as the “Santa rally.” But this
year as investors anticipate the end of
the global coronavirus (COVID-19) pandemic the traditional rally will get
a boost and is expected to run a lot longer than normal as the epidemic starts to fade away in the first half of next year.
Equity markets have already jumped in November following the announcement by US pharmaceutical giant Pfizer
that it has a working vaccine with
over 90% efficacy. Coupled with Joe Biden’s win in the US presidential election investors rushed into the markets all at once to adjust their portfolios to the new realities.
“We have just seen the biggest rotation in the history of the Russian market,” says Smolyaninov. “Investors realised that after the US elections they need to change tack and they were closing out the
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popular short positions and reinvesting into things that have been ignored like oil and gas... it's a complete flip trade.” The size of the rotation is a result of the severity of the crisis. Since the markets crashed at the end of February investors have almost universally taken up defensive positions in, what Sberbank CIB dubbed, the stay-at-home stocks – things like media, tech, pharmaceuticals – and shorted the back-to-work stocks – transport, banks and oil and gas.
That trade reversed after Pfizer as investors went back to a more normal “balanced portfolio” buying up the traditional bluechips. In Russia some 70% of the market capitalization is made up by companies in the extractive industries, which have all been badly wounded in this year's crisis.
Leading traditional bluechip stocks on markets across the globe gained as much as 20% in a week as everyone made the same decision to rebalance their portfolio at the same time.