Strategy Note /
Russia

Alfa Strategy: Weekly Radar - Global markets await fresh catalysts

  • Geopolitics may influence the Russian market this week, but is unlikely to dictate direction

  • Geopolitical risk returns to Russia but no signs that sanctions risk has changed

  • Drop in shipping costs imply supply chains may be turning deflationary

John Walsh
John Walsh

Equity Strategist

Contributors
Denis Dorofeev
Boris Krasnozhenov
Alfa
16 November 2021
Published by

Geopolitics may influence the Russian market this week, but is unlikely to dictate direction: Russian equities have started the week on a positive note, paring back some of last week’s selloff that was triggered by geopolitical worries. Geopolitical developments are likely to influence the direction of the ruble and Russian stocks again this week, but we see some reasons for optimism. There has been acknowledgment by key players from all parties that certain red lines are very unlikely to be breached. In our view, a pragmatic solution to the current standoff between Belarus and the EU and Russia and NATO is a more likely outcome than further escalation. Inflation remains a worry for investors, but those fears have eased as the market prices in the new reality of persistent rather than transitory inflation, but with the expectation that inflation will ease as economies reopen from the lockdown and consumers start to spend more on services such as tourism, leisure and entertainment. There is evidence to suggest that the global supply chain is starting to show signs of being deflationary. Shipping costs are falling, as reflected in a plunge in the Baltic Dry index. Covid is back in the headlines and the infection curves are moving in a negative direction with renewed restrictions being imposed in Austria and the Netherlands. But with large numbers of the world population vaccinated, particularly in the developed world, trade and business disruptions are likely to be limited. China’s industrial production stats released overnight have become a key catalyst for commodity markets this week and that should provide support for Russian base metals and fertilizer producers. China’s IP and retail sales came above market estimates reflecting healthy economic growth. Assuming Brent moves back towards $85/bbl, as expected by our oil & gas analyst, there should be demand for Russian energy stocks. In general, we expect a return of the reflation trade to support Russian cyclical stocks this week. moves back towards $85/bbl, as expected by our oil & gas analyst, there should be demand for Russian energy stocks. In general, we expect a return of the reflation trade to support Russian cyclical stocks this week.