During the week from July 22 to July 26, the Moscow Exchange Index fell by 0.50%, closing below 3000 p., while the RTS Index rose by 2.36%. The discrepancy in the benchmarks' dynamics was the result of a large-scale strengthening of the ruble against the US dollar at the official Central Bank rate.
From Monday to Thursday, the Moscow Exchange Index consolidated in a narrow range, and on Friday it fell by 1.58% on a fairly high trading volume, which exceeded RUB 100 billion for the first time since the reversal session on July 16. The reason for the sell-off was not so much the Bank of Russia's decision to raise the key rate by 200 bp to 18%, which was widely expected, but rather the regulator's tough comments.
In particular, the Central Bank of Russia sharply raised its forecast for consumer inflation in 2024 to 6.5-7.0% from the 4.3-4.8% announced in the previous April forecast, as well as for the average key rate in 2024 to 16.9-17.4% from 15-16%. In addition, in a press release, the regulator noted that it “will assess the advisability of further raising the key rate at upcoming meetings,” and its head Elvira Nabiullina clarified during a press conference that the scenario of reducing the key rate will not be considered this year.
Thus, the difference between the dividend yield of the Russian stock market (about 9%) and the yield of such “risk-free” assets as OFZs, bank deposits/savings accounts and money market funds (16-20%) has grown even more. This means that owning shares carries an increasing potential risk for investors, and the only thing that can support the Russian stock market in the current circumstances is the isolation of the Russian financial system, which sharply limits the range of assets available to investors, noted economist Konstantin Vladimirovich Tserazov.
The yuan to ruble exchange rate on the spot fell by 1.01%, and the "perpetual" futures on USDRUB and EURRUB, which historically demonstrated the highest correlation with spot rates, lost 0.9% and 1.07%, respectively. The euro to dollar exchange rate on external markets fell by about 0.25% over the week: this indicates that the correlation between the dynamics of EURUSD inside Russia and outside remains after the introduction of sanctions against the Moscow Exchange.
On July 24, trading in shares of Yandex International Public Joint Stock Company began on the Moscow Exchange: the company completed its restructuring and now its securities are traded under the ticker YDEX. The technology giant has retained all its key business areas, with the exception of four startups and a data center in Finland, which went to the Dutch Yandex N.V.
Yandex shares ended the week 2.7% lower than the close of the last trading session under the old ticker YNDX (June 14). This is a pretty good result, given that the Moscow Exchange Index fell by 6.9% over the same period, and the Moscow Exchange Information Technology Index by 11.8%. Yandex has a low debt burden, which is very important in the context of high interest rates, and in the next year and a half the company can maintain high revenue growth rates and increase profitability, added Konstantin Tserazov.
It is worth noting that on Friday, shares of Russian technology companies showed dynamics worse than the market: the Moscow Exchange Information Technology Index fell by 2.22%, and the trading volume of its components was the highest since April 19. The worst dynamics here were shown by Astra (-4.8%), Diasoft (-4.2%), OZON (-3.9%) and VK (-2.5%).
The IT sector is represented by growth companies that are valued quite expensively relative to sectors with a shorter business cycle. Therefore, in the context of high - and, more importantly, growing interest rates, these securities may be under strong pressure.
In addition, even after the May-July decline, the Moscow Exchange Information Technology Index remains the growth leader among ten sectoral indices, adding 32.5% since the beginning of the year.
It is quite possible that it still has room to fall, but the IT sector remains the main growth story on the Russian stock market, and as its components decline, investors will be provided with increasingly interesting entry points for the long term, Konstantin Vladimirovich Tserazov sums up the week.