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bne December 2020 Cover story I 29
BCS GM said the inflows were so strong it was worried that the market might even be overheating a bit. The inflows
in the first week of November were the biggest this year – including the boom months in January and February before any of this year’s crises were even visible.
“The Russia-dedicated funds reported large intakes received by both traditional funds ($50mn) and ETFs ($77mn). However, there were two funds, one
in every category that made the final number as impressive as strong as second best since July 2018 – the VanEck Vectors Russia ETF (RSX) reported
a whopping $97mn of weekly inflow among the ETF category, while the Pictet – Russian Equities fund showed a $52mn weekly intake, BCS GM said in a note.
The massive rotation was visible in the US markets where as the same time the Nasdaq, which is home to corona- preferred stocks like tech, was falling, but at the same time the Dow Jones, which holds the more traditional industrial and financial stocks, was rising in the middle of November.
“The global stock allocation ship was skewed too much in one direction and that ship was starting to take
on water. Now people are closing the popular short/long positions as the ship returns to its more usual course,” says Smolyaninov.
Actually this process has been going on since the summer even before the mass rotation began in November. Following the big sell-off in March investors slowly started buying back into their favourite stocks focusing mainly on
the stay-at-home names with Russia’s internet giant Yandex being the clear favourite as it simply became “too cheap to ignore.” Yandex’s shares went back into the black in terms of loss/gain
YTD on June 18 and have returned
a whopping 49% to investors YTD as
of November 25. Leading supermarket chain Magnit followed the same path and has returned 20% over the same period, including a recovery from being down 48.7% from its January 1 level on March 12. In the depths of the panic selling in March Yandex has also come
Relief rally in 2021?
Tamas Szilagyi in Budapest
Will there be a relief rally in 2021? There should be. In the year after Russia’s previous crashes there has been a big bounce back as investors got back into a market that was “too cheap to ignore.” Russia’s equity market remains extremely volatile but all said and done it has some very large and very valuable companies.
In August 1998 the market crashed, the ruble lost three quarters of its value, the state defaulted on $40bn worth of treasury and Eurobonds and the entire top tier of the banking sector collapsed. The RTS fell from a high of almost 400 to a low of just 38 in the middle of 1999. But the market bounced back returning investors 197% that year.
In September 2008 the market crashed again as a result of the sub prime global financial crisis. Again the RTS fell from an all time high set on May 19 2008 of 2,487.92 to fall to a low of 1,058 that September. In 2009 the market enjoyed
a relief rally that took the index back to 1,445 earning investors a return of 129%.
The next crisis came in 2014 when the oil price collapsed sending the ruble from around RUB35 to the dollar to a low of RUB80. The RTS lost 45% of its value that year, but it took a lot longer for the economy to recover from a deep recession and the relief rally didn't come until 2016 when stock prices soared by 52% in that year.
This time may be a little different. The market gained 45% in 2019, but that was not a post-crash relief rally per se, but a reaction to Russia’s spending on the 12 national projects and its gradual emergence from the stagnation of the last decade.
This year stocks had lost 40%-45% in the worst of the crisis in March but already bounced back as the pandemic restrictions were lifted over the summer. Howev- er, at the time of writing the market remains underwater to the tune of 25% since January. If the equity market stays true to form there should be a strong relief rally in 2021 – albeit less spectacular than following previous crises. Analysts at BCS Global Markets are predicting that the market will rally by at least 30% in 2021.
Russia RTS results
Year
RTS index (eop)
% change y/y
Year
RTS index (eop)
% change y/y
1996
201
142
2008
632
-72
1997
397
98
2009
1445
129
1998
59
-85
2010
1770
23
1999
175
197
2011
1382
-22
2000
143
-22.4
2012
1527
11
2001
257
79
2013
1443
-5.8
2002
359
40
2014
791
-45
2003
567
58
2015
757
-4.5
2004
614
7.7
2016
1152
52
2005
1126
83
2017
1124
-2.5
2006
1922
71
2018
1069
-5.1
2007
2291
19
2019
1550
44.9
Source: bne IntelliNews, MOEX
www.bne.eu