Page 86 - RusRPTMar19

OIL AND THE RTS
About two thirds of the capitalization of Russia’s stock market is made up of oil and gas names and in the past the market’s performance has been closely tied to the price of oil.
However, as politics have come to player a bigger role the relationship between the cost of a barrel of the black stuff and the height of the leading dollar denominated RTS index has broken down. And the relation was further weakened by the re-introduction of the so-called budget rule at the start of 2018, where all government oil revenues from when oil prices are over $40 are siphoned off into the state’s rainy day fund.
There is a handy rule of thumb for checking if Russian share prices are over or undervalued as the RTS’s value is on average x20 the cost of a barrel of oil.
Although this relation doesn't work as well as it used to despite the run up in oil company prices this year, that are easily outperforming the RTS, according to the rule of thumb the RTS is undervalued by over 400 points as of August – the biggest gap it has displayed for at least two years.
At the start of 2019 with oil prices averaging $56 in January the RTS at 1,200 was overvalued according to the x20 rule by some 100 points.
The average oil price rose to $65 in February and at this level the x20 rule of thumb suggests the RTS is undervalued by 76 points.
86 RUSSIA Country Report March 2019 www.intellinews.com