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Russian stocks climbed for a fifth day after Citigroup Inc. said the country is a shielded from the fallout of Britain’s vote to leave the European Union.
The Micex Index rose 0.5 percent to 1,906.32 by 6:22 p.m. in Moscow, bringing its advance in the past five days to 3.5 percent. GMK Norilsk Nickel PJSC and Lukoil PJSC led gains on Monday as the Russian benchmark got close to wiping out losses since the so-called Brexit vote on June 23.
Russia is regarded as “place of hiding” from pressures related to the U.K. exit, Citigroup Inc. analysts, led by Richard Schellbach, said in a research note. The country is less exposed to the fracture of the EU after two years of sanctions over the conflict in Ukraine blocked many of its companies from global debt markets and hindered trading ties.
“Russia’s detachment from an economic perspective shines favorably on its equity market,” Citigroup said. “The country’s strong balance sheet provides protection in the event of U.S. dollar strength and capital flight” from developing countries, it said.
The world’s biggest energy exporter has been one of the main beneficiaries of oil’s 35 percent recovery this year to surpass $50 a barrel, which is improving the outlook for Russia to emerge from the longest recession in two decades.
Brexit risks prompted traders to scale back bets for when the Federal Reserve would start raising interest rates again, boosting the appeal of ruble-denominated assets as investors hunt for higher yields. While the currency weakened 0.1 percent to 63.8525 per dollar on Monday, it’s up 12 percent in 2016, the most after Brazil’s real among 24 developing-nation peers.
The currency may weaken toward the end of the month as foreign investors convert the dividends they have received from Russian companies into foreign currency, said Vladimir Miklashevsky, a senior strategist at Danske Bank in Helsinki. Oil at around $50 a barrel is “comfortable” for Russia, he said.
Brexit helped “the ruble in particular as it postpones a Fed rate hike until early 2018 at best,” said Miklashevsky, who predicts the ruble will be 11 percent stronger at 57.10 against the dollar in 12 months.
Government bonds due February 2027 ended a five-day rally today, with yields climbing four basis points to 8.28 percent. The rate dropped 40 basis points last week.