Page 96 - RusRPTMar19

8.3.3 ECM news
Over the past fifteen years, VEB.RF “silent” pension funds earned 187.6% return. Inflation over the same period was 245.4%, reports BMB. In real terms, VEB.RF pension funds, the state run mandatory pension scheme, lost almost 58% in value over the last 15 years. There are a few clear explanations for this. First, 2008 and 2014 the fund brought significant shocks to the Russian market just as the global crisis got underway. Second, prior to 2009, Vnesheconombank (VEB), the state development bank that also maanges the pension funds, was very limited in its investment options. True, VEB’s ten-year results look much better, with pension returns outpacing inflation by 12.5 percentage points. However, retirement savings are a long- term matter. With VEB.RF being the default manager for any pension funds not otherwise allocated, these results highlight a serious flaw in the pension system. The “Silent,” or molchuny, pension funds refer to the savings of individuals who did not indicate a specific investment fund to manage their savings that are drawn from social taxes. Nominally Russians can nominate a pension manager for these payments, but if they say nothing then the pension contributions default to VEB. All funds left in the national Pension Fund are automatically transferred to VEB.RF. Until 2009, VEB could only invest in government securities. From 2004-08, its silent pension funds outperformed inflation only once, in 2005. VEB will likely not be able to make up real returns in the coming years. Due to liquidity risk, VEB primarily invests silent funds in short-term bonds (issued by, for example, Russian Railways (RZD), the Federal Grid Company, and Gazprom). The average coupon at the end of 2018 was about 4.5%. VEB also invests heavily -- 21% of total assets -- in government savings bonds. All issues placed before mid-2008 currently have a rate of 5.5–6%. Subsequent issues have a fixed rate from 7.6-8.15%.
Russian carmaker AvtoVAZ applied to the Moscow Stock Exchange to delisting its shares. It notes that the decision was made by the Netherlands company Alliance Rostec Auto BV, which is the sole shareholder of AvtoVAZ. The automaker should also contact the Central Bank with a statement about exempting it from the obligation to disclose information about securities, as well as make changes to its charter, excluding the indication that AvtoVAZ is a public company, the report said. Trading in AvtoVAZ shares has been suspended since November 30 last year due to a request to repurchase equity securities.
No changes to the top four names in the MSCI Russia 10/40 rebalancing.
Russia’s retail giant and investor’s darling state-owned Sberbank remained top of the list in the MSCI Russia index rebalancing, although analysts say it is underweight in the index given its popularity. The biggest gainer was carmaker GAZ, which saw the biggest gain in it's the benchmark index, VTB Capital (VTBC) said in a note on February 19.
The Morgan Stanley Capital International (MSCI) announced the results of its Russia 10/40 rebalancing, with all changes effective after the close of trading on 28 February, together with the Standard review.
The top four names remained unchanged: Gazprom (GAZP), Lukoil (LKOH), Tatneft (TATN), and Sberbank (SBER RX).
“As we expected, the biggest weight increases came from Gazprom (GAZP) (+63bp to 9.33%), mobile phone operator Mobile TeleSystems (MBT) (+39bp
96 RUSSIA Country Report March 2019 www.intellinews.com