Page 16 - bne magazine November 2021_20211104 uzbekistan risding

16 I Companies & Markets bne November 2021
Russia RTS
bne:Funds
Russia’s RTS stock index breaks above 1,800 for the first time in 10 years
Ben Aris in Berlin
Russia’s dollar-denominated Russia Trading System (RTS) index broke above the 1,800 mark for the first time in over a decade on October 7 to end the day at 1,854.
Russia’s stock market has been enjoying a rally this year that has seen the overall market up by around a quarter. Banking stocks have been the preferred investment, used by investors as a proxy for exposure to the general economic recovery, which were up some 60% YTD as of last week of October.
The rally on the RTS comes in parallel with a general enthusiasm for Russian companies that has led to an IPO boom, as bne IntelliNews has recently reported. Russia has seen almost a dozen companies list in the last year, mostly from the tech and retail sectors, raising billions of dollars in the process. International portfolio investors are overweight Russian stocks at the moment, not because they have been buying the traditional blue chips, but because they have loaded up on all these debutants.
However, the market surged again, driven by easing political tensions and rising oil prices that crossed the $80 mark for the first time in years. At the same time investors have been buying into Russia’s national gas company Gazprom as gas prices have soared eight-fold since the start of the year.
In recent weeks portfolio investors have been taking profits in banks and reallocating their investments into oil and gas stocks, which gained 4pp this week to return 39% YTD and would have closed the gap with banking shares, except these soared as well to finish the week returning 70% YTD.
This is the second time the market has tried to rally. For most of the years since sanctions were imposed in 2014 following the annexation of the Crimea, and an oil shock that same year, the RTS has been range-bound between 900 and 1,300, but the best blue chips started to rally in 2018 when the Russian economy finally started to recover. Names like Russia’s biggest supermarket chain X5 Retail Group and the leading real estate developer PIK saw the value of their shares double that year. But in 2019 the rest of the market was being lifted as well and the RTS broke above 1,400 for the first time in five years at the end of the year.
www.bne.eu
Source: MOEX
2020 looked like the rally would continue, fuelled by Russian companies' proclivity to pay out the highest dividends in the world – twice the MSCI EM benchmark average. However, after yet another oil price shock struck in March, quickly followed by the start of the coronacrisis, the index collapsed to around 800, before recovering some of the ground lost during the summer.
Moods improved as the autumn arrived. The tête-à-tête between Russian President Vladimir Putin and US President Joe Biden in Geneva on June 16 did a lot to alleviate increased sanctions fears and reduce political risk. Then the announcement of effective vaccines that arrived in the following months promised an economic recovery in 2021 that set a new rally off, or at least a return to the previous rally in 2019.
In addition to the return of enthusiasm for Russian shares has been the push given as Russians turn to the stock market for the first time after the traditional store of wealth – high-yielding bank deposit accounts – saw returns fall to next to nothing after a six-year-long string of rate cuts by the Central Bank of Russia (CBR). As bne IntelliNews reported, SPB Exchange has seen an explosion of retail investors investing in stocks, including a large share going into international stocks as Russians seek to protect themselves from the volatility of the ruble.
Retail investors are also helping to drive the current rally and now account for some 40% of the daily turnover on the Moscow Exchange (MOEX).
International vs retail flows
The surge in the market has been remarkable, say analysts. Investment flows tracker EPFR Global released its fund flows data through the week ending October 6 and found Russian assets saw net circa $50mn inflows from combined equity and bond fund flows in the reported week vs circa $80mn outflows during the previous week. Russian dedicated funds saw even more: inflows of circa $70mn, up from $30mn the week before – the best result since March.
“Global energy rally finally brought quality money into Russia traditional funds at a pace unseen since the start of the pandemic, while EM stocks also attracted new cash,” said