Timur Aliyev

For the Russian market, the end of 2021 saw the outflow of foreign investors’ monetary assets and an accelerated fall of the key indices, against the backdrop of foreign policy tensions and mixed signals from international stock exchanges. It was influenced by the conflict between Russia and Ukraine, as well as the threat of imposition of new sanctions. Investors tend to forget external factors, as they are distracted by geopolitical risk and the toughening tone taken by Western countries toward Russia. 

A significant influence on both global and Russian market dynamics continues to be the pandemic. The suspension of Rusnano bond trade caused alarm and uncertainty for all Russian markets.

A record $220 million in foreign assets was withdrawn from Russian stocks last year, which is one of the best results since April 2020. This behavior was not limited to the Russian stock market. Fearing that the U.S. Federal Reserve would tighten its policy, international investors sold assets across all emerging markets. Investors transferred their money into U.S. shares. Ahead of the last Fed meeting in 2021, Fed Chairman Jerome Powell sharply tightened his rhetoric, abandoning the term “transitory inflation,” and the Fed’s last meeting suggested three rate hikes are possible in 2022. As a result of global investors reviewing risk, they hedged and cash flows have shifted from the emerging markets to more stable and resilient developed markets. The EPFR reports that developed market funds had raised almost $34 billion in the month to-date as of mid-December.

Highlights

September was the best month for the Moscow Exchange this year, as the index rose to new  historical highs through most of the month, peaking near the end of September. The Russian indices declined in the final quarter of this year due to high inflation and low expectations regarding the Central Bank’s policy. The index dropped to 3,532,29 points in mid-December for the first time since April 20,21. However, it was able then to recover most of its losses. Experts believe the drop is due to foreign investors. Russian investors are used to dealing with geopolitical tensions and sanctions. Russian investors have a better understanding of the market and are therefore less likely to panic.

Omicron coronavirus, news about its rapid spread, and an increase in global inflation have had a negative impact on Russian market dynamics. Stocks in Russia are also negatively affected by the recent lockdowns that have been implemented in European countries. However, the U.S. stock market has not experienced any new lockdowns and the corona news in Europe is being taken in stride.

However, the pandemic created an overhang of liquidity. This is because states have had to allocate significant money to fight the spread of the virus and to vaccine the populace. Inflation has been caused by these costs. Russia has seen a dramatic drop in its GDP growth due to stagnation in the economy and increased competition from small and medium-sized companies. The normal functioning of the economy and labor market will require time.

At the close of the year, Russia’s Central Bank decided to increase its key interest rate to 8.5%. It was not surprising that this decision came about, even though the regulator had previously warned of it. The reason for such a step was inflation, which exceeded the Bank of Russia’s expectations. This Central Bank believes that the increase in the key rate will slow down price growth and bring inflation back to its earlier target level of 4% by 2022. However, the regulator doesn’t rule out the possibility of raising the rate in the future.

VK Company (MCX) (Mail.ru) provides information about the performance specific companies. Petropavlovsk PLC (MCX) X5 Retail Group NV and MCX (MCX:), are the biggest losers this year. VK (Mail.ru), which is at a record 40% loss since the start of the year has been a significant drop in all index stocks. As it trades below 1,200 Rupees, its shares have fallen to new lows. Experts attribute this decline to Alisher Usmanov, a billionaire who sold VK shares. Gazprombank then bought in VK and transferred its stake to Gazprom Media Holding.

Petropavlovsk is a Russian gold miner whose shares fell 33% from the start of the year. Stocks fell 33% in the first half of this year due to the conflict of corporate owners and the decrease of production capabilities.

The shares of the leading retailer X5 Group, which saw its share price drop 25% from 18 months ago, also did not please investors. As inflation has led to widespread increases in prices in both food and goods, this is a clear sign of the impact. Retail should not be allowed to take the best of the situation and then pass the price rises on to their customers. However, this isn’t true. Customers save more on products with a higher marginal markup than the intermediary and essential products have taxes added in.

The Russian stock market saw some success this year, in spite of all these negative elements. Despite a deteriorating market, there were some success stories: Gazprom (MCX), Sberbank Rossii PAO [MCX], VTB (MCX], and NK Rosneft PAO [MCX].

Gazprom reported an IFRS profit in its first nine months of this year of 1.59 trillion rubles, compared with a loss of 202 million rubles a year ago. Gazprom expects it to earn double the dividend yield and receive record dividends in 2021.

Brand Analytics found that Sberbank shares are the most widely used securities in Russian-language social networks in 2021. Second place was taken by Gazprom shares, while third place went to Sberbank. Yandex NV (MCX:) (NASDAQ:). Sberbank has seen its ordinary and preferred share prices rise by approximately 20% each year since the beginning of this year.

VTB’s IFRS net income in the first six months of this year increased by 317.22% year-on year to 170.6 trillion rubles. VTB has been cited repeatedly by experts as being one of the top investment opportunities for Russian companies in 2022. Andrei Kostin, the head of VTB Bank predicted that VTB’s profits would exceed 300 billion rubles by 2018. Top managers repeatedly stated that they will continue to give 50% of net profits to ordinary shareholders. VTB is expected to have an unheard of high dividend yield next year, at 15%.

Rosneft saw its financial results surpass expectations at the end of Q3 2020, when net income increased by 35% over Q22021. Rosneft has also been attractive to investors due to the completion of Vostok Ol, a significant project. It is also attractive to investment, according to many analysts. In December, the Russian broker BCS listed it on a similar list. J.P. Morgan, America’s largest investment bank, also included Rosneft as one of the top global opportunities for 2022. According to analysts, Russia’s oil sector is expected to be the main driver of economic activity. With an expected average price of $74, the oil price will continue to rise. This is higher than the average price for the last 7 years.