- Steep decline in crude has not wiped out Russian indices
- Longer-term investors may be buying on dips
- Russian stock gains have not kept pace with crude oil
Crude oil prices have soared and then begun a dive as of late, but Russian equities remain more stable than the country's premier export. Photo: iStock
By Nadia Kazakova
The sharp reversal of the Brent oil price on Friday might have been dramatic, but it has not completely wiped out Russian assets' weekly gains.
The MSCI Russia Index ended the week up 2.8% week-over-week, pushed up by a positive return on the MSCI emerging markets index (up 0.9% w/w) and a gain on the one-month continuous Brent futures (1.8% w/w).
Absolute and relative performance of MSCI indices, Brent one-month futures and USDRUB:
Source: www.msci.com, www.cbr.ru, www.quandl.com
Year-to-date, though, the return on Russian blue-chip equities are a far cry from the gains seen in one-month Brent futures. It seems that equity investors are reluctant to start pricing $50/barrel oil into their equity valuations just yet.
A few oil price fundamentals are turning bearish and there is an uncomfortable comparison to be made with last year when a deep oil price correction happened in the second half of 2015.
One consolation for Russian equity holders is that the correction/turnaround in the oil price might have been anticipated and therefore a modest decline in the oil price ($5/b or so) might have been already priced in.
Money flows in Russian equity funds have turned positive over the last couple of weeks. The data, however, do not take into account the oil price weakness seen at the very end of last week.
Fund flows into Russian equity funds and MSCI Russia Index performance, $ million:
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Source: www.msci.com, www.interfax.ru
A sizeable inflow of $80 million (for the seven days ending June 8) followed an $18 million net inflow on the previous week ending June 1. Thus, some of the money withdrawn throughout May ($334m over the four weeks to May 25) did come back, driven by another mood swing over the pace of the US rate increases.
Despite the chunks of money moving in and out of Russian equity funds, the MSCI Russia index has barely changed over the period. As of June 10, it was at 483 – roughly the level seen both one and two months ago.
One explanation could be that longer-term investors are using dips to buy into the market (those who want to have an increased exposure), while others are selling into mini-rallies. On balance, it seems, the counter-flows might be of a similar size, leaving equity prices relatively stable and short-term punters disappointed.
If this trend continues, Russian asset prices might be able to sail through the oil price correction.
Next on the horizon is the Saint Petersburg Economic Forum on June 16-17. If nothing else, it will generate some (hopefully) positive headlines, which is always welcomed by markets.
Can the market-movers set to meet in Petersburg provide the financial press
with enough positive headlines to boost Russian indices? Photo: iStock
— Edited by Michael McKenna
Nadia Kazakova is a specialist on Russia, particularly the oil and gas sector