Russia took the lead in capital outflow among BRICS countries.

Whereas Russian Central Bank reported capital inflow in government bonds, foreign investors leave the country’s equities market. Non-resident funds sold out Russian companies’ securities with a total amount of $167 million in Moscow Exchange last week, Sberbank CIB reported linking to EPRF Global’s data. Funds exclusively oriented to Russia withdrew the most part of the funds - $111 million. Almost half of that outflow was organised by one of the largest US exchange fund, investing in Russian equities - VanEck Vectors Russia ETF. The fund received inquiries from its clients to withdraw $66.3 million during one week. The total outflow amount reached $151.3 million since the beginning of March. As a result, all of this year’s investments in Russian equities were eliminated.

Also, global funds withdrew from Russia $10 million last week, while funds investing in EMEA (Europe, the Middle East and Africa) withdrew another $33 million. The capital outflow struck not only Russia as investors took out $2.8 billion from EM assets funds. US-China trade talks issues had a significant negative impact as the meeting between Donald Trump and Xi Jinping was postponed till April-May.

Nevertheless, Russia lost the largest investments volume among BRICS countries - non-resident funds withdrew an amount equal to 0.29% of their overall asset portfolio, according to Sberbank CIB. That’s a quarter more than average outflow from Emerging Markets - 0.23%. Passive funds, portfolios of which are related to indices, sold shares for $64 million, while funds with active management sold equities for an amount of $103 million.

The Russian equities market is the cheapest one among Emerging Markets currently as it fell behind other regions by 50%, according to P/E indicator, while the annual dividend yield of 7% is the largest in the world, ITI Capital analysts noted. In spite of that, investors take profits as the nervousness around new US sanctions package against Russia grows, which adds pressure to the general EM capital outflow, Grand Capital Head of Analytical Department Sergei Kozlovskiy said.

The capital outflow from Russian assets might also be related to upcoming yearly meetings of shareholders, as well as uncertainty about dividend yields, which can whether show growth or unexpected drop for investors, Vice President of Loco-Bank Andrei Liushin said. Russian Ministry of Finance fights to force all of the state companies to pay out 50% of net profit to shareholders but consistently fails to impose that rule.

However, the market’s problem is more in-depth as the share by definition is private property, whereas Russia struggles to implement that law, says Andrei Movchan, Director of Carnegie Moscow Centre’s “Economic Policy” programme. Any company can go bankrupt quickly, sanctions or ‘local doctor’ can attack it, Movchan continues, - that makes the market unpredictable and closes it to foreign investors.
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