Riding dividend yield wave, Russia's MOEX index on cusp of record 4,000 points

MOSCOW: An easing risk of sanctions, handsome dividend yields and resurgent oil prices have lifted Russian stocks to new heights this year, with the benchmark MOEX index poised to break through the 4,000-point mark on an upward trend that analysts expect to continue.

Russia's MSCI equity index has climbed more than 14% since the United States imposed sanctions on April 15, making gains similar to fellow oil producer Saudi Arabia, which it had lagged early this year, and well above the broader emerging market equity index, dragged down by China.

The rouble-based MOEX index hit an all-time high of 3,949.07 points on Aug. 18, before fading as prices for oil, Russia's main export, tumbled. But passing the 4,000 threshold seems only a matter of time.

High oil prices and Russia's rapid economic rebound have increased the attractiveness of its already high dividend yields, which the Moscow Exchange sees at 7.9% by year-end, well above emerging market peers.

This dynamic is the strongest argument for the Russian market, said Slava Smolyaninov, chief strategist at BCS Global Markets, especially with the government relying on state companies' payouts, making the investment relatively safe.

"Some people consider Russian stocks as a bond - even if there is no growth, you are getting this cash," he said.

Russia's increasing retail investor numbers, an ongoing trend that accelerated during COVID-19 lockdowns in 2020, is also a constant support factor for stocks, Smolyaninov said.

"They keep increasing positions by 1-1.5% per month, which is not that big, but it is growing, constant and almost uninterrupted," he said.

Soft monetary policy in key developed countries supports the global economy and is partially responsible for strong corporate earnings this year, which helps MOEX's dividend yield, said Natalia Malikh of Finam brokerage.

Russia's largest state-owned banks posted record quarterly earnings, with VTB Bank making net profit of 85.5 billion roubles ($1.15 billion) in the second quarter and dominant lender Sberbank targeting an ambitious 1 trillion roubles in 2021 net profit.

Malikh said stocks should consolidate near historical maximums this year.

"It will be difficult to maintain similar growth levels, with the market looking overbought. But there is also no reason for panic and a reversal."