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Russian equities suffered from a double whammy of the oil war with Saudi Arabia in addition to the fast deteriorating corona effect on the markets. OPEC tried to resolve the sharp drop in demand for oil but were only able to gut around 10% of the estimated 30% reduced demand for oil. The rouble dropped to 78 per dollar at quarter end vs 61 at the beginning of the year.   Russia has a mild covid-19 report vs other countries and Russia also benefits from its widespread population and work places that are isolated like mines, oil and manufacturing.

Russia can sustain low oil prices better than most of its peers with a stable macro-economic situation, break-even at $42 per barrel and no debt and can therefore easily borrow money in a time of need. The weaker rouble benefits domestic producers and inflation is benign.

We may see an uptick in the inflation rate given the weaker rouble and a likely GDP decline this year of around 5-6%.
Looking ahead, next year should recover, US shale producers may have to substantially cut back their oil production which should result in an oil price closer to the budgeted price leaving the Russian budget reasonably robust even in this scenario.

Domicile: Bermuda
Source: Bloomberg, AP Asset Management

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