Mutual games on the weaknesses of the ruble

The last month of summer pleased private investors in the collective investment market. The best dynamics were demonstrated by the riskiest category of funds, focused on shares of Russian and foreign companies. The weak ruble and high prices for raw materials have become key factors for growth in the stock market. At the same time, this led to a tightening of the Central Bank’s policy and a decrease in the prices of ruble bonds. Managers expect Russian shares to continue to grow on the back of a weak ruble, good reports and interim dividends.

Summer promotions

The performance of almost all retail mutual funds during the summer months pleased shareholders. According to InvestFunds, only 14 out of 142 large retail funds (OPIFs and BPIFs, net asset value over 500 million rubles) saw a decrease in the value of their shares during this period. A year earlier, every fourth fund was unprofitable, and in the summer of 2021 – every fifth.

The leaders in growth were mutual funds of both Russian and foreign stocks; all of them, without exception, showed double-digit returns – 18–38%.

Uniting such different assets in terms of geographic and sectoral orientation of the investment currency, one growth factor was the weakness of the ruble. Over the three summer months, the dollar exchange rate increased by 18% and returned to its maximum since March 2022 (96 rubles/$).

Oil pressure

A weak ruble has historically had a positive effect on the Moscow Exchange index, half of which is accounted for by export-oriented companies. A significant part of the revenue of such companies is formed by contracts with foreign clients and are mostly concluded in dollars, euros, and now also in yuan. As a result, the weakening of the Russian currency leads to an increase in ruble revenue without an increase in the price of goods or the volume of their shipment. Due to the fact that the expenses of such companies are mainly in rubles, during the period of ruble devaluation, investors begin to factor into the price of shares the improvement in the financial performance of these companies.

As a result, the best results were shown by shares of oil companies, as well as mutual funds focused on investments in the oil sector.

According to InvestFunds, shares of such funds increased in price by 23–38% over the three summer months. An important factor in the growth of such assets was not only the weakening of the ruble, but also the increase in oil prices, as well as high dividends paid by companies. Over the summer, the price of Russian Urals oil increased by more than 54%, to $75 per barrel.

The oil sector has a high contribution to the Russian market, and therefore its rise has had a positive impact on the entire stock market. At the end of the summer, the Moscow Exchange index grew by more than 24% and for the first time since February 2022 consolidated above the level of 3200 points. Funds focused on the broad market brought shareholders an income of 21–37%.

Anton Kravchenko, head of the equity management department of Management Company Pervaya, notes two more important factors for the growth of the Russian market – the expected disclosure of financial statements by companies and a strong second quarter in the Russian economy, which helped show both exporters and companies in domestic sectors good results.

Currency margin

Mutual funds focused on foreign stocks benefit from ruble weakness, as this leads to positive currency revaluation. Director of the asset management department of Alfa Capital Management Company Viktor Bark notes that such funds were also helped by the strong growth of Western markets against the backdrop of lower inflation risks and expectations of increased rates by the Federal Reserve and the ECB. At the end of the summer, the S&P 500 index gained 7.8%, the Euro Stoxx 50 grew by almost 2%.

Currency revaluation had a positive impact on the dynamics of shares and currency bond funds (an increase of 15–20%), as well as funds investing in gold (14–17%).

“Eurobond funds showed a significant increase in profitability in the summer months, mainly due to the weakening of the ruble, as well as a moderate increase in prices of foreign currency securities by an average of 2%,” notes portfolio manager of Sistema Capital Management Company Pavel Mitrofanov.

The bet didn’t work out

Ruble bond funds were again outsiders. According to InvestFunds, for the most part mutual funds of corporate bonds or with a dominant share of such securities showed an increase in the value of the unit by up to 1%. At the same time, the cost of shares of mutual funds of government bonds decreased to 2.7%. Over the summer, the Moscow Exchange corporate bond index RUCBTRNS decreased by 0.4%, and the government bond index RGBITR decreased by 2.5%. However, through active fund management, management companies managed to outperform the indices.

In general, the debt market was under pressure from the tightening monetary policy of the Central Bank.

In July, the Bank of Russia raised the rate by 1 percentage point, to 8.5%, which coincided with the expectations of market participants. However, a complete surprise for them was the August decision of the regulator to raise the rate by another 3.5 percentage points, to 12%. “The tightening of the regulator’s signal due to increased pro-inflationary risks contributed to investors’ reassessment of the trajectory of changes in the key rate and, as a result, led to an increase in OFZ yields. In the corporate securities segment, there was a moderate price correction compared to government debt due to lower liquidity and the reluctance of market participants to sell bonds with a double-digit yield of 10–11% per annum, preferring to hold them until maturity,” notes Pavel Mitrofanov.

Key position

At the same time, the August increase in the key rate was unable to stop the main pro-inflationary factors: the weakening of the ruble and the growth of lending. Therefore, in September, the Central Bank did not rule out the possibility of another increase in the key rate. According to Pavel Mitrofanov, at the September meeting, which will take place next Friday, the regulator may increase the rate by 150-200 bp. p., up to 13.5–14.0%. In such conditions, ruble bond funds remain among the outsiders.

An increase in the key rate, as noted by Victor Bark, will help improve the results of money market funds (as the Central Bank rate increases, so do the rates on the money market), as well as the Russian stock market.

The main factors of growth in the stock market will remain the same: the weakness of the ruble, rising oil prices and positive corporate news, including dividends. According to the estimates of Management Company Pervaya, by the end of the year Russian companies will pay 1.1 trillion rubles in total, of which 140 billion rubles. will have to be on an unblocked free-float. “The oil and gas sector and IT companies will feel better than others. The oil industry will be helped by a weak ruble and rising oil prices, and the main driver of IT companies will continue to be strong results and redomiciliation,” notes Anton Kravchenko.

Vitaly Gaidaev