How Are Russian Equities Responding to Oil Prices in 2017?
Russian equities’ performance
Russian equities so far in July 2017 have rebounded and have posted gains in contrast to the losses they posted in the previous month. The oil price recovery and improved macroeconomic data seem to have lifted the market sentiment in the Russian market this month.
As we can see in the chart below, MICEX, the Russian benchmark index, is up by about 9% so far in July 2017 as of July 21. The recovery in oil (USO) (UCO) prices in July 2017 boosted the performance of Russian stocks. Brent oil prices have risen about 3% so far in July 2017. Let’s look at the Russian equity performance over the last month in the below chart.
Interested in USO? Don't miss the next report.
Receive e-mail alerts for new research on USO
Improved macroeconomic fundamentals
Improved industrial production and exports in Russia (RSX) have helped to lift the economic activity in 2017. Russia’s industrial production rose 3.5% on a year-over-year basis and 5.6% on a month-over-month basis in June 2017, which was in line with market expectations.
However, the performance of Russian equities seems to have been affected by lower corporate performance in 2017 as compared to 2016. Corporate profits in Russia fell 9.4% on a year-over-year basis to 3,224.5 billion rubles in the first four months of 2017 as compared to 3,558.5 billion rubles in the same period the previous year. Profits fell in manufacturing, wholesale and retail trade, transportation, information and communication, and agriculture. Meanwhile, the net income grew in sectors like mining and quarrying and real estate. The weaker corporate performance seems to be weighing on the equities’ performance in 2017.
Stocks have struggled to maintain the uptrend they saw in 2016 as geopolitical events and oil prices continue to impact their performance in 2017. The iShares MSCI Russia Capped (ERUS), which outperformed the emerging market index (EEM) last year, is also experiencing a decline so far in 2017. The ERUS also dropped about 9% so far in 2017, as of July 20, 2017. The political risk and concerns over the expanded sanctions are also expected to affect Russian economic recovery and equity performance in 2017.
Let’s look at the inflationary trend in Russia in our next article.