Russia: Micex celebrates New Year

Boosted by an improvement in global sentiment, the Micex index rose 2.7 per cent in its its biggest one-day gain since mid-September. The rouble appreciated 0.3 per cent against the dollar-euro basket.

Russians don’t officially go back to work until Wednesday January 9, and the stock market bump was in line with the worldwide rally for equities prompted by the US deal to avoid the fiscal cliff and some promising economic data. (The FTSE All-World equity index on Friday reached its highest level since May 2011.)

Meanwhile, the oil price is also rallying with the price of WTI Crude hovering around $93 a barrel – its highest price since last September.

Russian equities are still the poor cousins of global markets, trading at a big discount to European and many emerging market peers – with a price/earnings multiple of just 5.5 – about half the figure for the MSCI Emerging Markets Index.

This long-standing gap persisted throughout 2012 despite some positive factors: high oil prices, reasonably strong economic growth (the increase in GDP is expected to come out at over 3 per cent), and the end of political uncertainty surrounding the March 2012 presidential elections and the Moscow street protest movement.

One positive note for Russian stocks going was a report released at the end of the year by the state-owned Russian Direct Investment Fund, Ernst & Young, and a research centre at Lomonosov Moscow state university, which claims that Russian capital outflows are not actually as large as reported.

The report has generated no little criticism about its methodology. In any case, even if Russia’s outflows are smaller than previously calculated, they are still outflows – in a world when most emerging markets are registering inflows. As Capital Economics said in a note on Tuesday:

A spat towards the end of last year over the true scale of capital flight from Russia risks missing the bigger picture, which is that capital continues to flow out of the country in the first place. Most other large EMs experience significant inflows. The fact that Russia doesn’t is a particular concern given that its current account surplus is likely to evaporate over the next three years or so.

Clearly, a rerating of the Russian stock market involving a big new inflow of foreign investment would improve the outlook no end.

Courtney Weaver

FT