Russian investors crowding the exits
- Global funds withdraw nearly $87m from Russia last week
- Central Bank of Russia says it sees no trend for further RUB weakness
- Evidence shows efforts to stabilise the rouble might be taking effect
- RUB could still face stiff macro winds after this week's FOMC decision
Money continues to flow out of Russian equities with $86.6 million withdrawn in the week ending September 9. As in the previous week, it was mostly global/tracker funds that reduced their positions in Russia (as well as other emerging markets).
On the other hand, Russia-dedicated funds – both active and ETFs – saw relatively modest, single-digit withdrawals.
Weekly equity fund flows and MSCI Russia Index ($ million):
Source: www.msci.com, www.gazprombank.ru, www.interfax.co.uk
Along with the funds outflow, the lower oil price has weighed on both the rouble and Russian shares. The rouble has lost 0.48% week on week, and the MSCI Russia Index has dropped 0.44% (w/w) against a gain of 1.76% in the same period for the MSCI Emerging Market Index.
Even amid its fall, however, the rouble was noticeably less volatile than the ICE Brent Index, down 4.9% (w/w) to $47.88/barrel.
Absolute performance of MSCI Indices, RUBUSD and the ICE Brent Index (% ytd, % w/w):
Source: www.msci.com, www.cbr.ru, www.theice.com
The Central Bank of Russia did little to cheer markets when it made its macro forecast for the next three years on September 11.
Given an average Urals oil price of about $50/b for 2015-2018, the bank expects the Russian economy to contract by 3.9%-4.4% this year (against previous forecasts of a 3.2% drop) and to decline further (by 0.5%-1%) in 2016.
Inflation will remain high at 12-13% (y/y) in December 2015 and is expected to decline slower than is expected in 2016 (where about a 5.5%-6.5% y/y is forecasted by the end of next year).
This two-year stagflation is probably not the base case for many analysts and not the best macro scenario for equities. A wave of earnings downgrades could follow, with a negative effect on equity prices.
Fundamentally, a weak economy also means a weak RUB. The central bank, however, is keen to emphasise a few positives for the currency in its quest to stabilise the currency and moderate inflation.
At the press conference on Friday, central bank governor Elvira Nabiullina said that she did not see a trend for further weakness in the rouble (at the bank's projections of a $45-$50/b oil price until the end of this year).
The bank estimates that net debt repayments will remain around $30 billion from September to December of this year (the remaining $29.6bn is presumably to be rolled over or refinanced) and then $60bn in 2016 (an amount conveniently covered by the current account surplus).
There is no shortage of foreign exchange reserves, and the central bank would step in (with its ample reserves) if this is required for foreign debt repayments.
The Russian central bank's efforts to stabilise the rouble (tighter short-term liquidity, verbal interventions) might be having some effect.
The latest weekly statistics on positions in rouble futures show a sharp reduction in net shorts (for the week ending September 9). This is almost an exact reversal from last week, when leveraged money managers (hedge funds) opened large net short positions against the RUB.
Commitment of traders in rouble futures and USDRUB rate (number of contracts):
Source: www.cftc.gov, www.cbr.ru -
The move in the RUB must have allowed for some profit-taking. The upcoming Fed meeting on September 16-17 might be another excuse for sitting on the fence.
As the volatility after the US rate decision subsides, the rouble might still face stiff macro economic winds.
— Edited by Adam Courtenay and Michael McKenna
Nadia Kosakova is a specialist on Russia, particularly the oil and gas sector. Read more of her views on social trading leader Saxo Bank's content platform, TradingFloor.com.