Carnegie Rysslandsfond rose by about 15 percent in the first six months of 2016. The rising oil price was the main driver of the upturn. As of today, the oil price is around USD 50, which the market perceives as an acceptable level.
The Russian economy has been struggling with a recession ever since the oil price began to slide in 2014. However, it looks like the first half of 2016 was the nadir and that the economy is moving towards growth, factors now being priced in by the market. The market perception is also that the political situation has stabilised and relations with the West are on the brink of improvement, although sanctions against Russia have not been lifted.
The fund’s assets under management rose from SEK 2,793 billion to 3,159 billion, mainly due to value appreciation. Net inflow to the fund was SEK 14 million
In most cases, the fund’s holdings are listed in USD or RUB. The ruble rose against SEK by 13.6 percent during the first half. The US dollar rate has not changed.
A number of the fund’s investments have delivered good returns during the year. With an upturn of 52 percent, Sberbank was the best investment among the larger positions.
Moscow Exchange also made a positive contribution to the fund, rising 42 percent, while Polymetal went up by 64 percent and MTS by 36 percent. HMSG, up 48 percent, is notable among the smaller holdings. The new holding Inter RAO rose by an impressive 164 percent.
Luxoft (-34 percent), Mail.RU (-19 percent), Magnit (-16 percent) and Megafon (-10 percent) were among the poorer investments.
We were a net buyer in Lukoil during the half year. The share hit bottom along with the oil price early in the spring. We also chose to increase our exposure against the financial sector and became a net buyer of shares in Moscow Exchange The company is very profitable and pays high dividends.
The fund increased its position in Magnit as we found the share cheap at the price and concluded that the fall in consumption in Russia had finally been checked. We bought Severstal when we judged that the share had dropped far enough and that steel prices had stabilised. We were also buyers in Inter RAO.
The situation for the Russian energy sector looks brighter now that the rate of investment is slowing and a larger portion of cash flow can be diverted to dividends. We were major sellers of Sberbank in the spring in a profittaking forced by the steep increase in the share. Gains were also locked in through the sales of Gazprom and MTS.
At 30 June, the fund was 92.76 percent invested in equities. The remaining 7.24 percent was made up of cash and cash equivalents. Investments are concentrated to 31 holdings.
The larger holdings include Sberbank, Novatek, Surgutneftegaz preference shares and Gazprom.
After oil prices bottomed out in January, the Russian equity market has since delivered stellar performance. The political situation, which has been chaotic in recent years, has settled down at least for the moment and the economic slowdown seems to have ended.
We expect a moderate economic recovery over the next few years which we believe will provide some buoyancy to the market. The immediate future will be controlled by developments in the oil price.
We believe oil prices will continue to rise and have positive impact on the market this autumn, provided that the political situation remains stable. Over the longer term, political developments will mean everything.