Konstantin Tserazov: a week of large-scale fluctuations in the ruble exchange rate

In the week from June 17 to 21, the Moscow Exchange Index fell by 3.16%, and the RTS Index - by 1.94%. Thus, shares of Russian companies fell in price both in rubles and dollars.

The week passed under the sign of large-scale fluctuations in the ruble exchange rate, and this factor exerted significant pressure on the Russian stock market. The cumulative decline in CNYRUB on spot in the first three days of the week exceeded 10% (against this background, the Moscow Exchange Index fell by almost 7%, testing the strength of the level of 3000 points), but at the end of the week it was less than 1%. Similar dynamics were shown by “perpetual” futures for USDRUB and EURRUB, which historically showed the maximum correlation with spot rates of the dollar and euro.

The ruble began to rise in price back in April, when, due to sanctions, Russian importers had problems making cross-border payments. This factor led to a reduction in demand for foreign currency, while its supply from exporters remained stable. After US sanctions against Moscow Exchange, NCC and NSD, announced on June 12, some players began to get rid of “toxic” dollars and euros, which provided additional support to the ruble.

However, on June 20, news appeared that a number of Chinese banks began accepting payments from Russia, and on June 21, the Russian government relaxed the requirement for the mandatory sale of foreign currency earnings by exporters (now they will be required to sell 60% of foreign currency received under foreign trade contracts, and not 80 %, like before). Against this background, the ruble has noticeably fallen in price, says economist Konstantin Tserazov.

According to media reports, on June 24, the EU will announce the 14th package of sanctions against the Russian Federation, which, in particular, will be directed against Russian LNG for the first time. In addition, persistently high inflation creates the preconditions for raising the key rate at the July meeting of the Central Bank. All these factors, coupled with the increased volatility of the ruble, are unlikely to allow the Russian stock market to resume sustainable growth in the near future, and June/July are historically not the most favorable months for this.

But in the future - as problems with imports are resolved, the ruble stabilizes/weakens and the Russian economy adapts to new sanctions - the Moscow Exchange Index may resume growth. Over the past ten years (from 2014 to 2023 inclusive), it has never decreased in August, and its average increase was 3.24%. This is the best indicator for any month, added Konstantin Vladimirovich Tserazov.

In the meantime, the capitulation of buyers due to the sale on June 3, as well as the active repurchase of drawdowns on June 13 and 20, indicate a high probability that the market has formed a bottom and will spend the coming weeks in consolidation (the volume of stock trading on the Moscow Exchange on June 20 amounted to almost 179 billion rubles, which appears to be a record high since winter/spring 2022).

Shares of Russian IT companies continue to show stronger dynamics than the Russian share market as a whole. In particular, the Moscow Exchange Index is below the annual maximum by 11.5%, and its growth since the beginning of the year is only 0.5%, while the similar indicators for the Moscow Exchange Information Technology Index are 8% and 43.5%, respectively.

Let us recall that on June 21, the shares of Softline and Diasoft were added to the calculation base of this index in addition to the shares of Astra, Headhunter, OZON, Positive Technologies and VK.

After the growth of recent months, shares of Russian technology companies do not look too cheap, but their valuation at 8-10x EV/EBITDA 24 (Softline, Positive Technologies, Headhunter, Yandex) cannot be called overly aggressive, given the rapid growth of their financial performance. The IT sector is the main long-term growth story in the Russian stock market, therefore, after a likely period of consolidation, its components should resume growth along with the Moscow Exchange index, Konstantin Vladimirovich Tserazov sums up the week.