RTS crosses 1000 level for first time in a year

RTS crosses 1000 level for first time in a year
Russia's RTS index crosses 1000 mark for first time in a year
By Ben Aris in Berlin September 7, 2016

Is Russia’s stock market stirring? The dollar-denominated RTS index crossed the psychologically important 1,000 mark for the first time in a year on September 7 and was trading at 1000.19 at the time of writing.

This was the first time since May 2015 that the index went into four figures, but the RTS index is still way off its all-time high of 2,487 reached on May 19, 2008, only months before the world’s financial system went into meltdown.

The index follows on from its sister ruble-denominated MICEX index that set a post-2008 high of 1865 points in November last year and subsequently reached an all-time high of 1914 in March this year. The MICEX was trading at 2,049 at the time of writing.

Russian stocks have been having a good year with RTS and MICEX indices respectively up 28% and 14% year to date, or 22% and 18% y/y, making Russian equity the second best performing globally this year, after Brazil, which is up 65.5% ytd, according to Morgan Stanley Capital International.

In general, emerging markets (EM) are increasingly back in fashion as investors hunt for returns in the near-zero interest rate world and other big traditional stock markets such as in the US look overbought. The MSCI EM index is also up 16% ytd, making it the best performing amongst the traditional and leading developed markets (DM) indices, according to Morgan Stanley Capital International.

The main driver for the rise in the stock price is the price of oil, which jumped following a newly announced informal agreement between Russia and Saudi Arabia to coordinate production to maintain oil prices. The countries agreed to establish a working group, which will meet in October to discuss strategic partnership in the oil and gas sector. The news sent oil prices back up to just below $50 in a day. Oil was trading at $ 47.81 a barrel on WTI on  the morning of September 7.

While oil is the most obvious factor, enthusiasm for Russian assets in general have been growing as international tensions subside. The price of Russia’s credit default swaps (CDS) also fell back to below their pre-annexation of Crimea in 2014 levels the same week.

Likewise, the Russian state and leading corporates have seen a recent boom in bonds issues on the international market met that has been met by enthusiasm from bond investors.