Article / 11 July 2016 at 9:30 GMT

The breaking point for Russian stocks

Russia oil and gas expert
United Kingdom
  • MSCI Russia index performance points to safe-haven bid
  • Equity prices trading around a Brent oil price of $45/b
  • Russian 'insulation' likely a short-term phenomenon

Russian equities are firing on all cylinders, but the country may not be as insulated from the current array of macro shocks as many investors seem to believe. Photo: iStock

By Nadia Kazakova

Calling Russian equities a safe-haven a couple of months ago would have sounded slightly deluded at the very least. This, however, is exactly the weekly and the year-to-date performance of the MSCI Russia Index seem to indicate. 

The Russian blue-chip index was up 0.05% for the week ending July 8; those steely nerved investors who placed their funds in Russia on the last day of 2015 are now sitting on just under 20% in gains. 

Relative and absolute performance of MSCI Russia Index, USDRUB and Brent 1M futures:

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A look at the relative performance, however, might give a bit of an insight as to what could be going on. There has been a significant rise in the Brent oil price and Russian equities since their respective mid-January lows, but the rally in stocks (as measured by the MSCI Russia Index) seems to have stalled in early May. 

The Brent oil price dipped to $43.6/barrel on May 9, then rallied to $47.3/b on June 11, and then onwards and upwards to pass $50/b on June 2. The equity index, however, got stuck in a relatively tight trading range since early May (460-504 with an average of 480). 

The winning trading strategy would be to buy near the bottom of the range and sell near the top. 

It seems that equity investors feel most comfortable when the MSCI Russia Index trades at the levels seen when the Brent oil price was around $45/b and are broadly reluctant to take the index too far from that sweet spot in either direction. 

At the macro level, Russia might seem like a relatively safe haven, and insulated from the worst of the Brexit jitters provided that the oil price is not affected too much. However, if global markets are spooked again and the Brent oil price continues to slide past the $45/b mark, Russian assets might not be as insulated as they currently appear.

Another warning signal comes from the weekly fund flows into Russian equity funds., where it is not the weekly numbers on a standalone basis that matter. Over the week ending July 6, there was actually an inflow of money into Russian funds totalling $2.5 million. 

Weekly flows into equity funds investing in Russia, USD million:

On a cumulative basis since the start of the year, however, equity investors withdrew just over $400 million from Russian funds. Over the same period of time, the MSCI Russia Index was up nearly 20%. 

While the fund statistics might not include all the cash that flows in and out of Russian equities, it does give an indication of what a relatively large portion of investors are doing. 

In the short term, Russian equities might benefit from calamities elsewhere. Longer-term investors, however, might still find it difficult to see a good economic case for Russia and Russian shares.

Safe haven or convenient port in a storm? Photo: iStock

— Edited by Michael McKenna

Nadia Kazakova is a Russian oil and gas expert 
Tepord Tepord
МОСКВА (Рейтер) - Результаты референдума о членстве Великобритании в ЕС привели к временному росту волатильности на российском валютном рынке и поспособствовали спросу на ОФЗ, заключают эксперты Банка России.
После решения о Brexit резко повысилась волатильность на мировых финансовых рынках, что сопровождалось снижением цен на нефть и продажей международными инвесторами рисковых активов.
В этих условиях курс рубля несколько снизился, а его волатильность увеличилась, но в последующие дни неопределенность на финансовых рынках уменьшилась, и рубль отыграл потери.
Tepord Tepord
"В то же время это событие способствовало продолжению перетока средств нерезидентов в наименее рисковые сегменты российского фондового рынка. Иностранные участники активно распродавали в июне российские акции и корпоративные облигаций и увеличили объемы покупок ОФЗ и региональных бумаг на первичном рынке", - говорится в обзоре ЦБР "Ликвидность банковского сектора и финансовые рынки".
Tepord Tepord
Минфин сообщал о резком спросе нерезидентов на ОФЗ и собирается им воспользоваться, четырехкратно увеличив предложение госбумаг на внутреннем рынке в 2017 году.
"Спрос нерезидентов в сочетании со стабильно высоким спросом российских банков позволил Минфину России реализовать в июне 85,3 процента предложенного к размещению объема выпусков ОФЗ и почти полностью (на 99,7 процента) выполнить заявленный им на второй квартал 2016 года план заимствования на рынке государственных ценных бумаг", - пишет ЦБР.
Объем предложения ОФЗ на аукционах в третьем квартале составляет 240 миллиардов рублей, при этом половина суммы приходится на длинные выпуски.


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