After the December sell-off, the first quarter of the year was favorable for the Russian market and did not disappoint investors. Great assistance for the market was provided by growing oil prices (+27%) as well as the influx of investors while the geopolitical news has had a moderate negative impact. As a result, the MSCI Russia index and Russian Federation First Mercantile Fund grew by 11.85% and 15.3% respectively.

Despite this growth, today the Russian market continues to have strong valuation support, companies pay higher dividends and return cash to shareholders via buyback programs. For instance, the RTS index has P/E ratio 5.2, the lowest level in EM while its dividend yield is 5.7%.

According to the Russian Central Bank opinion, the country’s GDP growth in the first quarter of 2019 will be 1-1.5% YoY. It’s predictable lowering, in our opinion, after unexpected growth by 2.7% in the previous quarter. At the same time, manufacturing and composite PMI rose to 52.8 and 54.6 respectively while PMI services showed the same figure 54.6.

The reaction of Russia’s economy to geopolitical challenges has been to strengthen macro resilience via a floating RUB, inflation targeting, approx twin surpluses, and Gold & FX reserve accumulation. Also, I’d like to note that Russian Gold & FX reserve ($489.5bln) exceeded internal public debt ($453.7bln as of the end of 2018).

Source: Bloomberg, AP Asset Management