23 June 2020
24th Annual Virtual Investor Conference in Moscow. Day 1 Highlights

Please note that session recordings are fully available on the conference landing page moscow2020.rencap.com and on our YouTube channel both in English and in Russian

Panel discussion: Russia’s economic resilience – Previous efforts are paying off

The first panel discussion was dedicated to the economic sustainability of Russia and was chaired by Alexey Moiseev, Deputy Minister of Finance of the Russian Federation and Alexey Zabotkin, Deputy Chairman of the Central Bank of Russia (CBR). The session was moderated by Charles Robertson, Global Chief Economist, and Sofya Donets, Economist, Russia & CIS, both of Renaissance Capital. 

  • Mr Zabotkin noted that the CBR telegraphed the possibility of a 100 bpts decrease since mid-May, and this was implemented last Friday (19 June). The CBR does not rule out the possibility of further rate cuts.
  • The CBR still adheres to its forecast of a GDP decline in 2020 of 4-6%. Notwithstanding the expected recovery growth in 2021 (2.8–4.8%), the output gap could remain negative, exerting disinflation pressure this and next year.
  • Real GDP will return to the level of 2019 only in 1Q22 and the CBR expects a transition to a neutral monetary policy at end-2022.
  • In Russia, where the rate is far from zero, there is ample scope for a safe credit expansion. This applies both to corporate credit and mortgages.
  • Alexey Moiseev emphasised that the government has introduced extensive measures to support the economy and the population. However, these measures are mostly temporary in nature and are to be pulled back partially starting from 3Q20. This may exert disinflationary pressure from fiscal policy this year and into 2021.
  • A complete return to the fiscal rule in terms of expenditures is expected in 2022.
  • MinFin is adhering to the privatisation policy and plans to return to the market with state assets placement as soon as this autumn.
  • In parallel, as an alternative to privatisation, the state will pursue the goal of increasing the efficiency of management in state-owned companies.
  • Regarding the risks of potential new sanctions on Russia, both speakers noted that since 2014, the state has done a lot of “homework” to reduce the sensitivity of the economy.
  • In terms of borrowing sources, the MinFin gives priority to the domestic market and the development of the latter should also be supported by the introduction of a new tax on bank deposits and tax incentives for individual investment accounts.
  • Sofya Donets noted that high uncertainty persists, but Renaissance Capital remains more bullish on GDP growth (2.5% YoY contraction in 2020) than market consensus and expects that the recovery will be visible from 2H20. The fiscal position remains strong and Russia will maintain its BBB credit rating.
  • Given comments from Minfin and the CBR, we could expect a period of expansionary monetary policy to be more prolonged. In combination with the government’s efforts to improve corporate governance, provide tax incentives to domestic investors and a consistent strategy for a higher dividend pay-out ratio of state-owned enterprises, this should promote a strong performance in the Russian stock market going forward.

A fireside chat with an oil industry veteran – Bob Dudley, former CEO of BP, member of the board of directors of Rosneft

  • Mr Dudley thinks $55-65/bl is a reasonable level for the global oil price. The oil price needs to be sustainably above $60/bl for investments in the US shale oil industry to resume, as investor confidence needs to be rebuilt. But marginal costs must come down towards $40/bl.
  • However, US gas prices may stay low given vast production potential and lack of demand growth.
  • Mr Dudley praised the efforts of OPEC+ to constrain production. IOC participation in some contracts limits compliance, but a greater issue is individual countries’ ability to comply with agreements.
  • Generally, production numbers are heading in the direction of compliance and Mr Dudley thinks the agreement should work, assuming full compliance by larger oil producers.
  • Focus on climate change and environment Global oil & gas companies must take care to find a balance between investing in renewable energy and the interests of their shareholders.
  • The most crucial priority – apart from consuming less energy – is to work on detecting and eliminating methane leakage into the atmosphere. Renewables combined with natural gas has to be one solution for reducing carbon emissions, according to Mr Dudley.
  • There is a big opportunity to increase oil output in Russia through the application of new technologies and an increase in recovery rates.
  • BP’s stake in Rosneft is not just a financial investment, it is a strategic partnership; there is much potential in Rosneft greenfields. Of course, the share price is lower now, but Rosneft’s dividend policy is attractive.
  • Vostok Oil looks promising with vast reserves, and the new management of BP will make a decision on whether to participate in this project.