Konstantin Tserazov: consumer inflation in the Russian Federation in the week before July 1 exceeded the figure for the previous reporting period
In the week from July 1 to July 5, Russian assets were under pressure: the Moscow Exchange Index fell by 0.16%, and the RTS Index by 2.86%. Thus, shares of Russian companies fell in price both in rubles and dollars.
Only two of the ten Moscow Exchange industry indices managed to close the week in positive territory: oil and gas (+0.44%) and chemicals and petrochemicals (+0.08%). The main outsiders were transport (-4.36%), telecoms (-3.75%) and builders (-3.69%), added economist Konstantin Tserazov.
The yuan exchange rate against the ruble increased by 2.03%, and “perpetual” futures for USDRUB and EURRUB, which historically showed the maximum correlation with spot rates, added 1.79% and 2.39%, respectively. The euro/dollar exchange rate on external markets increased by about 1.2% over the week: this suggests that the correlation between the dynamics of EURUSD inside Russia and outside is not ideal, but still remains after the introduction of sanctions against the Moscow Exchange.
Consumer inflation in the Russian Federation in the week before July 1 jumped by 0.66% n/a, which was three times higher than the previous reporting period. This event, due to the indexation of housing and communal services tariffs, was quite expected, however, it once again forced investors to think about the prospects for monetary policy in the Russian Federation.
On July 4, the head of the Central Bank, Elvira Nabiullina, said that pro-inflationary risks had not only increased, but had also materialized, and that the main subject of discussion at the meeting of the Board of Directors of the Bank of Russia on July 26 would likely be the step of increasing the key rate. The next day, the Moscow Exchange Government Bond Index (RGBI), which had spent the previous seven sessions in consolidation, resumed its decline and closed the week less than 1% from the two-year lows reached on June 20, says Konstantin Vladimirovich Tserazov.
Apparently, today the market is betting that on July 26 the Central Bank will increase the key rate by 100-200 bp. up to 17-18%, however, the spread of forecasts for its level is quite large and ranges from 16% to 20%.
Additional pressure on the Russian stock market (in addition to dividend cuts, high interest rates and sanctions) comes from the prospect that not all dividend payments may return to the market this season.
Firstly, the Russian stock market no longer looks as cheap as it did a year ago.
Secondly, the ruble, the permanent weakening of which last year was the main driver of growth in the Moscow Exchange Index, has not only stabilized, but has also risen noticeably in price in recent quarters.
Thirdly, the profitability of “risk-free” instruments (banking products, OFZ and money market) at the level of 15-18% significantly exceeds the current dividend yield of the Russian stock market at about 9%.
These factors further increase the riskiness of such instruments as shares, but this does not mean that new sales are inevitable (although this cannot be ruled out). It is quite possible that the Moscow Exchange Index will remain in the current wide range of 3000 – 3250 points in the coming months, after which it will resume growth against the background of a possible wave of weakening of the ruble (this will require solving problems with imports and, possibly, a decrease in world oil prices), as well as a slowdown inflation/decrease in interest rates.
In this case, the main favorite of investors may again be shares of Russian IT companies, which represent the main growth story. On July 24, shares of MCPAO Yandex will begin trading on the Moscow Exchange; in addition, Arenadata, KIFA JSC, Red Soft, and Selectel may hold IPOs this year.
As for the securities of Russian IT companies that are already traded on the Moscow Exchange, most of them - Astra, HeadHunter, OZON, CIAN and Positive Technologies - show dynamics noticeably better than the market, adding 20-70% since the beginning of the year versus 1.6% for Moscow Exchange Index. And this is despite high interest rates, which usually act as a deterrent for such growth companies, Konstantin Vladimirovich Tserazov summed up the results of the week.