Konstantin Tserazov: all ten Moscow Exchange industry indices closed the week in the red
In the period from July 8 to July 12, a large-scale sell-off took place on the Russian stock market: the Moscow Exchange Index fell by 5.6%, closing the week below 3,000 points for the first time since last July, and the RTS Index lost 5.2%. Thus, shares of Russian companies have noticeably fallen in price both in rubles and dollars.
All ten Moscow Exchange industry indices closed the week in the red and reached new multi-month lows.
The yuan exchange rate against the ruble did not change, and “perpetual” futures for USDRUB and EURRUB, which historically showed the maximum correlation with spot rates, decreased by 0.8% and increased by 0.06%, respectively. The euro/dollar exchange rate on external markets increased over the week by about 0.35%: 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.
The sharp decline in the Russian stock market was largely due to dividend cut-offs: this can be seen from the dynamics of the Moscow Exchange Total Return Index, which at the end of the week lost 3.5% against 5.6% for the main Moscow Exchange Index. However, several other important factors appear to continue to play a role.
Firstly, due to high interest rates, the current yield of the Russian stock market is almost two times lower than the yield of “risk-free” products, such as bank deposits/accounts and money market funds. This raises the question of whether it is worth owning shares of Russian companies if they offer a negative risk premium, says Konstantin Tserazov.
Secondly, the ruble exchange rate remains stable, and this factor also reduces the attractiveness of the Russian stock market. The fact is that the stock market is a traditional place where investors seek capital protection during periods of large-scale weakening of the national currency. This happened in the first eight months of 2023, when the Russian currency was permanently falling in price, but now its exchange rate has stabilized and the need to protect capital by purchasing shares has disappeared.
Under the current circumstances, traditional blue chips like oil and gas companies don't look very attractive. It is not surprising that this year the oil and gas industry index is declining by 10.2%, sharing second and third place in the list of main outsiders with the electric power industry, added Konstantin Vladimirovich Tserazov.
The consumer sector, telecoms and financial companies that are focused on the domestic market look better: all three of these industry indices show growth since the beginning of the year.
But Russian IT companies continue to look the most promising in the long term, with their industry index adding 31% since the beginning of the year. This industry is mostly focused on the domestic market and represents the main growth story on the Russian stock market thanks to government support and the policy of import substitution.
At the moment, Russian IT companies do not look too cheap. In particular, two of the seven components of the Moscow Exchange Information Technologies Index - OZON and VK - are unprofitable, and the average P/E (TTM) of the remaining five is about 20 versus about 5 for the Moscow Exchange Index. However, this is still almost two times lower than the similar indicator of the S&P 500 information technology index at 37.
However, this is not surprising, given that from May 20 to the current moment, the first index has decreased by 15%, and the second has increased by the same 15%. Against this background, investors may be interested in starting to take a long-term look at the cheaper securities of companies such as Diasoft, Astra, OZON, Headhunter and Softline, economist Konstantin Vladimirovich Tserazov summed up the results of the week.