Russian Markets Up 27% In 2019 As Investors Look At Fundamentals Beyond Sanctions

Russian stocks, bonds and the ruble have all increased in value during 2019 as investors see economic recovery and catches up with other emerging markets.

Equities in Moscow are poised for their best annual performance in three years: The MOEX Russia Index, https://www.moex.com/en/ the main ruble-denominated stocks benchmark, has rallied over 27% so far, while the dollar-denominated RTS Index is up over 40%. The benchmarks have outstripped most other emerging markets and kept pace with the S&P 500.

Investors are getting back into Russian assets, attracted by the high dividends paid by state-run companies and the high yields generated by government bonds. The economy has adjusted as the impact of U.S. sanctions fade.

Since the imposition of sanctions, Russia has been on a lengthy recovery. Economic growth is expected to climb next year to 1.7%, a rate lower than most other major emerging markets. However, the sanctions also forced Russian companies to pay off Western creditors, helping shrink foreign debt. Policy makers also channeled a portion of oil revenue into a special fund, boosting foreign-exchange reserves to about US$436.1 billion at the end of November.

Meanwhile, inflation has dropped below 4%. That allowed the Bank of Russia earlier this month to ease interest rates for the fifth time this year, taking the benchmark to 6.25%, and signal it may reduce rates further. Russia has also been a keen co-developer, along with China in Belt & Road projects that see it taking a major role in the transporting of goods from China to Europe and vice versa. Like China, Russian businesses have also been investing in Africa and Asia, while the Eurasian Economic Union has also been expanding its free trade reach.

“There is plenty of opportunity and wealth in Russia” says Chris Devonshire-Ellis, the Chairman of Dezan Shira & Associates, and lecturer at the St.Petersburg Higher School of Economics, “Russian businesses are involved in both creating new domestic infrastructure as well as in overseas markets. They are very much part of the Belt & Road Initiative and we will see much more activity from Russian investors into Asia during 2020.”

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