Foreign investors flee Russian stock market
Foreign investors continue to sell off their shares in Russian companies in response to increased tension in Russia’s relations with the West and growing macroeconomic risks, finanz.ru reports.
During the week ending August 1, non-residents withdrew another $10 million from the Russian stock market, after pulling out $110 million the week before.
Funds focusing exclusively on Russia sold $40 million worth of securities in the last week and $130 million in the last two, according to a review published by BCS on Friday.
Funds which buy Russia in a basket with other developing markets added $30 million, which was not enough to compensate for the outflow of other foreign investors.
Non-residents’ exodus from the Russian market is gradually turning into a massive boycott. Foreigners have been disposing of shares for 15 consecutive weeks, with the exception of one week at the start of July, observed BCS strategist Vyacheslav Smolyaninov.
Even optimism towards emerging markets cannot compensate for the negativity – money is leaving the country from both traditional Russian funds and through ETFs, whereas overall, EM funds gained $894 million in fresh investments, having their best week since April.
Aside from the spike in the oil price, no significant market support factors are evident, Smolyaninov observes, since the topic of sanctions is making a new round.
On Thursday, an inter-party group of US senators put forward a bill proposing new sanctions on Russia for interference in US elections. The new sanctions would affect Russian government debt and energy projects. The bill also requires that a report be drawn up on Russian President Vladimir Putin’s own assets.
The document also contains a directive for the State Department to draft a report on the possibility of including Russia on the list of countries sponsoring terrorism, which would result in new sanctions being introduced automatically.
“This is a very unpleasant and potentially dangerous topic for Russian markets,” observes Kirill Tremasov, director of the analytical department at Loko-Invest. Investors do not yet have a clear idea of the details of the sanction package (the bill has not yet been published) or of how likely it is to be passed, he adds.
Interest in Russian shares has been supported by dividend payments: at the end of last year, they had grown by 16% to 1.69 trillion rubles, according to ACRA. Oil and gas corporations paid investors 711 billion rubles, metallurgy companies 455 billion rubles.
However, the resources for this generosity have disappeared: the aggregate flow of money after dividend payments was negative, as well as the profitability according to the FCF.
“Corporations’ operational business has already exhausted the resources for further increases in the dividend payments,” ACRA warns: without a significant increase in the operational effectiveness, this may have a negative effect on their credit quality.