Russian stock market rally
The Russian market rose again in September. Its equities are among the best in emerging markets this year, and the trend continues. Rysslandsfond is up 36.13 percent so far in 2019.
However, valuations have not expanded much and the average dividend yield is still 7 percent. The main reasons for Russia’s strength are better corporate governance in some major companies, the high dividends and a lower perceived sanction risk. The Russian market also gained support from higher oil prices after the attacks on Saudi Arabia.
The higher risk premium from the attacks may even lead to higher oil prices in the longer term as there is a concern of more similar attacks.
Russia ratified the Paris agreement on September 23, and is preparing a number of climate laws. It is the world’s fourth-largest greenhouse gas emitter and has many companies with very large emissions, but there is also much that can be done to reduce these relatively quickly. Russian businesses will be greatly affected.
It is interesting that Russia’s ratification leaves the US increasingly isolated on climate.
Stocks in Surgutneftegas rose sharply early in the month when it turned out that it has established a new subsidiary to trade in securities. This led to speculation the company will start using its USD 51 billion cash pile to buy back shares, for example. This was denied but the share remained volatile.
Polymetal has signed a sustainability linked bond of USD 75 million. The company is ranked first by Sustainalytics among 47 major global mining companies for its environmental work and social responsibility.
Russia’s finance minister, Alexej Moisejev, said in an interview that subsidiaries of state corporations would also be forced to pay 50 percent of profits as dividends, which could lead to higher dividends in, for example, Transneft and Inter RAO.
The Russian central bank reduced the repo rate by a further 25 basis points to 7 percent. Inflation is falling. Many analysts expect this trend to continue, and interest rates could fall to 5.5 percent by 2020 or 2021.