Kenneth Rapoza – Forbes April 23, 2019
The Moscow Stock Exchange continues to break records despite sanctions on its most important companies, including banking giant Sberbank and the world’s largest natural gas exporter, Gazprom. But despite pretty lousy sentiment on all-things Russia-related, the Moscow Russia Index is up over 100% in rubles in the last five years. It’s now at a record high.
“It’s actually amazing how well Russia has done given sanctions and sentiment,” says Chris Gaffney, president of world markets at TIAA Bank. “It makes you wonder what would happen if Russia had sanctions reprieve. I think the market would grow like a monster. And if you consider Trump possibly starting a trade war with Europe, then Europe may be the first to lift its sanctions on Russia in retaliation,” Gaffney says, thinking out loud on the possibilities for Russian securities should investor sentiment improve.
The MOEX Russia reached a new historical maximum on Tuesday during intraday trading, hitting 2,599.58 points before selling off slightly when the market closed. The previous intraday record was set on April 10 when the MOEX reached 2591.69 points.
Sanctions have largely served to shut Russia’s leading banks out of the bond market, making it impossible for them to capture low-interest rate loans in euros and dollars. For oil and gas firms, the sanctions mainly bans U.S. companies from working with the likes of Gazprom and Rosneft, Russia’s biggest oil company, on certain projects. Most of those sanctions target the selling of goods and joint ventures related to offshore drilling operations, or new technologies that would help Russia with horizontal drilling techniques.
Russia may be rising in spite of itself, too.
Higher oil prices — thanks in part to the end of waivers on Iran oil shipments, and a return to sanctions on Iranian crude — has oil over $70 a barrel. The ruble reacted this week to Washington’s removal of waivers was subdued, which is good for Russian oil companies who benefit from a weaker currency.
Since the beginning of the year, oil prices have increased by 38% with prices going up by around 9% this month alone.
Still, not only the oil sector is gaining in Russia. Yandex, the country’s biggest tech company, is up 38.2% in dollars. Mobile TeleSystems is up over 15%, which doesn’t look like much but it’s better than the MSCI Emerging Markets Index. The VanEck Russia (RSX) exchange traded fund is the second best BRIC ETF, trailing the iShares MSCI China (MCHI) fund. Russia is the second best emerging market this year.
Both Russia and China got beat up last year, most of it thanks to Washington politics.
But with the trade war on pause and with new sanctions on hold, China and Russia have had a good run for investors.
Russia has become more insular since sanctions began in 2014. Sanctions started due to Russia’s involvement in Ukraine in 2014. Russia annexed Crimea and backed separatists in east Ukraine provinces that were known as the country’s industrial hub, severely injuring the Ukrainian economy.
Russia’s central bank also deserves some credit. It’s kept inflation and interest rates under control.
Also worth noting, the ruling United Russia party passed unpopular pension reform, helping clean up some Russian debt at a time when it remains unclear if Russia will ever be able to take on lower cost loans in dollars and euros.
Russian interest rates are 7.75% and expected to remain unchanged at the next monetary policy meeting on April 26.
New companies are expected to list on the Moscow Stock Exchange later this year.
Dividend payouts in June will likely cause a reverse-course for the MOEX, but if oil remains over $70 and if the sanctions threat is no longer top of mind, Russia could beat out China this year as the best emerging market.