Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 08 May 2025 by Evgeny Gavrilenkov

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The sentiment on local financial markets changed to less optimistic amid the May holiday period. On the one hand, investors turned more skeptical about the possibility of de-escalation of the conflict with Ukraine. Hence, the previously anticipated “peace premium” may cause an asset price correction. It may affect both the equity and the fixed-income markets. The only exception is the exchange rate, which remains strong despite geopolitical uncertainty. We cannot rule out that the ruble’s volatility may rise in the coming weeks/months, especially if politicians’ rhetoric style turns more aggressive. Given the increased net banking liquidity (amid increased federal budget spending and widened deficit as the latter exceeded R1 trln in April), the ruble may start fluctuating in a wider range. On the other hand, investors remain cautious amid declining oil prices. The latter forced the government to revise some 2025 budget parameters. According to the draft proposals, which will be submitted to the State Duma soon, the oil and gas revenues this year will fall to R8.3 trln versus R10.9 trln according to the initial version of the budget. Lacking oil-and-gas revenues, the government intends to withdraw R0.45 trln from the National Wealth Fund instead of initially planning to add R1.8 trln). The amount of issuance of OFZ remains unchanged, but in the new reality, Minfin does not have much room for maneuver and needs to execute the borrowing program in full. As a result, investors are waiting for more premiums on the primary market. However, this looks uncomfortable for the issuer as it sparks a spiral of yield growth on the secondary market. We expect primary placements to de...