RSX: August Review
Summary RSX experienced huge volatility in August, but its share price finished the month only 0.88% lower. Russian GDP decline was bigger than expected and the situation in Ukraine started to deteriorate again. The main catalyst that should be able to push RSX price higher is oil price recovery. The Market Vectors Russia ETF (NYSEARCA: RSX ) declined by 0.88% in August. Although the 0.88% loss may indicated that August was a boring month, nothing is further from truth. Chinese economic woes initiated huge selloffs on global financial markets, Russian share market included. The share market panic was further strengthened by collapsing oil price that reached a new multi-year low at $37/barrel. On August 10, Russia announced that its GDP declined by 4.6% in Q2 2015. The decline was worse than estimated by analysts. The investors confidence was shaken also by news coming from Ukraine that indicated that the semi frozen conflict starts to heat up again. As a result, RSX was 15% lower compared to the July closing price at one moment. But as the situation on global financial markets calmed down and global share indices as well as oil price recovered slightly, RSX managed to erase most of its losses. The 4 biggest holdings in the portfolio of RSX are still shares of Magnit, Gazprom ( OTCPK:OGZPY ), Lukoil ( OTCPK:LUKOY ) and Sberbank ( OTCPK:SBRCY ). Weights of Magnit, Gazprom and Lukoil were over 7%, weight of Sberbank was slightly below 7%. On the 5th position, Norilsk Nickel ( OTCPK:NILSY ) replaced Novatek. The weight of Yandex (NASDAQ: YNDX ) keeps on declining, as shares of the company don’t perform well. If this trend continues, Yandex will slip out of the top 15 in the coming months. (click to enlarge) Source: own processing, using data of vaneck.com Out of the 15 biggest holdings, only 4 companies experienced share price growth in August. The biggest share price growth was experienced by Uralkali. Shares of the major potash producer were supported by its huge share buyback program. The biggest decline was recorded by shares of Yandex. Shares of the Russian search engine provider peaked at $21 in April. After 5 months of declines their current market price is less than $12. Source: own processing, using data of Bloomberg Although the recent months were hard for RSX, it is still up by almost 15% y-t-d. Among the 15 biggest holdings, Micex quoted shares of Surgutneftegas ( OTCPK:SGTPY ) did very well and they are up by almost 37%. Uralkali experienced a great August and as a result its share price is more than 30% up y-t-d. On the other hand shares of Yandex lost more than 1/3 of their value over the last 8 months. The second worst result was achieved by VTB Bank. VTB Bank share price lost almost 10% y-t-d. Source: own processing, using data of Bloomberg RSX remained to be very strongly correlated to the oil price (represented by The United States Oil ETF (NYSEARCA: USO ) in the chart below). The correlation between RSX and USO was stronger than correlation between RSX and S&P 500 for the better part of August. Given the important role that oil production plays in the Russian economy and given the strong position of energy companies in the RSX portfolio, it is hard to expect any meaningful and lasting change anytime soon. Source: own processing, using data of Yahoo Finance RSX share price went crazy in late August. The major share markets experienced a huge increase of volatility and the Russian share market was no exemption. The volatility measured by 10-day moving coefficient of variation was relatively stable from the middle of June to the middle of August. It was range-bounded in the 1%-3% interval. But in late August it increased rapidly and it crossed the 5% level for the third time over the last 8 months. (click to enlarge) Source: own processing, using data of Yahoo Finance Some of the more interesting news: The Russian companies were reporting H1 2015 and/or Q2 2015 financial results. Most of the important news were related to these reports in August. Gazprom announced its H1 2015 financial results. In H1 2015, Gazprom recorded net income of R568 billion which is 25% more compared to H1 2014. However in dollar terms, the income was only approximately $9 billion which is almost 30% lower compared to H1 2014. Norilsk Nickel surprised positively as its H1 2015 net profit remained almost unchanged compared to H1 2014, despite significantly weaker metals prices (nickel and copper prices were significantly lower compared to H1 2014). Norilsk Nickel recorded revenues of $4.9 billion (-14%), EBITDA of $2.7 billion (+8%), net earnings of $1.5 billion and adjusted earnings of $1.9 billion. Sberbank experienced a huge drop in profitability. It recorded net profit of R85.2 billion which is a 50% decline compared to H1 2014. In dollar terms, the decline is whopping 72%. The decline was caused by net provision charge for loan impairment that increased by R81.5 billion y-o-y. Total operating income before impairments remained almost unchanged. Rosneft signed LNG Supply and Purchase Agreement with state-owned Egyptian Natural Gas Company. According to the agreement, Rosneft will deliver LNG to Egypt. Rosneft has also reported its H1 2015 financial results. The company recorded revenues of $46.2 billion (-42.5%), EBITDA of $10.8 billion (-36.1%) and adjusted net income of $3.5 billion (-40.7%). Uralkali announced its intention to buy own shares and GDRs worth $1.32 billion. The company plans to purchase up to 411,042,224 common shares (1 GDR represents 5 common shares), representing 14% of company’s issued and outstanding shares. The purchase price will be $3.2 per share or $16 per GDR. Magnitogorsk Iron and Steel Works , one of the biggest Russian steelmakers, signed an agreement with Yandex Data Factory, an analytical subsidiary of Yandex, to develop a mathematical model and related software for steel making. The aim of the cooperation is to optimize consumption of ferroalloys and other materials during the steel production. Conclusion August was a wild month for RSX share price and it is probable that September won’t be too much calmer. The developments in China, oil prices and FED’s decision whether to raise or not to raise interest rates will affect RSX significantly in September. It is important not to forget about the political risks. Situation in Ukraine seems to be deteriorating once again and there are also rumours that Russia is about to start a direct intervention in Syria to support the government forces in its war with the Islamic State. It is hard to predict whether RSX will grow or decline in September. The only sure thing is that it will be a volatile ride. Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
