Strategy Note / Russia

Alfa Strategy: Weekly Radar – Equities likely to move sideways

  • Russian stocks outperformed last week amid heightened volatility on global markets
  • Can tech stocks lift equity markets further?
  • Cyclicals saw demand while tech and oil & gas stocks faltered

Russian stocks outperformed last week amid heightened volatility on global markets: Global markets were marked by volatility last week as investors started to question conviction for tech stocks. The VIX volatility index shot above the 30-point threshold for most of the week, testing a high of 38.2, which was not seen since mid-June. Russian stocks were back in favor – RTSI (+0.2% w/w @ 1,223) and IMOEX (-0.4% w/w @ 2,911) – finally shaking off geopolitical risks and outperforming peers – MSCI EM (-0.7% w/w) and MSCI All-World Index (-1.5%). General volatility and an aversion to tech stocks dragged the US stock markets down from recent highs – Nasdaq (-4.1% w/w), Dow Jones (-1.7% w/w) and S&P 500 (-2.5% w/w). The ruble eked out a rebound last week closing 0.5% stronger at 75.05/US$, again outperforming crude prices: Brent slumped 6.6% to $39.83 per barrel on concerns over the demand outlook after Saudi Arabia moved to cut its October contract at the start of last week.

Can tech stocks lift equity markets further? The Russian market is moving into a sideways pattern this week lacking fresh catalysts as investors globally are torn between optimism and pessimism. The big questions are can the tech rally rebound and can the sector maintain upward traction without fresh support stimulus from the US or will we see a rotation from value into growth? Although Russian cyclical names have outperformed in recent weeks, there is no evidence yet of a rotation from value into growth stocks. We are unlikely to see that until there is a more concerted economic recovery, particularly on the consumer side. That said, M&A activity in the tech sector over the weekend, may ignite appetite in the sector. Oracle jumped 9% in pre-market trading on reports the company beat Microsoft in negotiations for the US operations of TikTok. SoftBank stocks jumped around 10% on Monday in Japan on reports of a deal to sell chipmaker Arm to Nvidia. Nvidia agreed to buy SoftBank’s chip division Arm Ltd for $40 billion, taking control of some of the most widely used electronics technology in the semiconductor industry’s largest-ever deal. In the Russian stock universe, we expect metals & miners to remain on buyer’s radars – we highlight steel names (NLMK, SVST, EVR), Rusal and Nornickel. Alrosa is likely to consolidate last week’s strong gains. Tech names (YNDX, QIWI, MAIL) are likely to follow the dynamics of US peers, but we expect risk to be to the upside.

Other topics covered:

Cyclicals saw demand while tech and oil & gas stocks faltered

Can hopes of Covid-19 vaccine keep markets afloat despite a sharp rise in cases globally

Covid-19 in Russia – so far so good

Geopolitical tensions weighing on the Russia market in recent weeks appear to have eased

Brexit returns to the spotlight

Central banks in focus as looser Fed policy weakens the US dollar

Oil price flattish on market uncertainty, expect short-term volatility

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The contents of this document have been prepared by Joint Stock Company “Alfa-Bank” ("Alfa Bank") as Investment Research within the meaning of Article 36 of Commission Delegated Regulation (EU) 2017/5...

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