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More powerplay and sanctions against Russia

The US-China trade war intensified in August, and markets were influenced by recession worries and reduced global risk appetite. Of course, the Russian stock market was also impacted by these currents and, specific to Russia, by greater sanction risks.

The US decided to impose a second round of sanctions under the Chemical and Biological Weapons Control and Warfare Elimination Act, entailing three new measures. The most important of these is a ban on US banks investing in newly issued Russian government bonds. The market initially fell, but recovered somewhat towards the end of the month. Carnegie Rysslandsfond fell 2.2 percent.

Russia’s economic performance was unimpressive during the first half of the year, with GDP growth below 1 percent. The poor showing can be attributed mainly to very tight fiscal policy, and inflation-adjusted government spending decreased compared with last year. Monetary policy is also tight, but we expect interest rate cuts this autumn, perhaps as early as September.

The balance of payments surplus was 51.4 billion, which is slightly less than last year but still a strong number.

There were major political protests in Moscow during August, with on occasions 50-60,000 demonstrators, leading to over 1,000 arrests. The main grievance is undemocratic elections in the city of Moscow.

Many companies published reports this month. Lukoil’s Q2 numbers were a positive surprise, with cash flow looking particularly strong at USD 2.5 billion. The company is highly likely to continue with share buybacks. Gazprom’s results were more mixed. The low prices in European markets were expected, but still negative, while free cash flow of USD 3.5 billion beat predictions. Gazpromneft’s report was good, mainly due to stronger oil prices. Gold companies Polymetal and Polyuz both posted strong reports, with robust gold prices continuing to support their shares.

Oil company Rosneft is now under direct threat from the US for its involvement in Venezuela. If Rosneft does not cease operations in that country it faces new US sanctions.

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Carnegie Rysslandsfond invests in equities listed in Russia and in other parts of the former Sovjet Union. The region has great natural resources as well as many excitingcompanies in newer...

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