Research & Insights #4

Covid-19. Russian authorities confirmed 21 650 new cases of coronavirus on Monday 28 June, the highest number since January. In Moscow, a record number of daily deaths was recorded at 124. This increase is due to the more aggressive Delta variant, which first appeared in India. The developers of the Russian vaccine, Sputnik V, have admitted that it may be less effective against it. To limit the rise in cases, new restrictions were introduced. Moscow requires all public sector and service employees to be vaccinated, with penalties for employers who fail to meet the 60 percent target by August 15. It will also be mandatory for anyone wanting to go to a restaurant to present a QR code proving they have antibodies. Despite free vaccines since December 2020, only 13% of Russians have received the two injections. The population’s distrust of the state and Covid-19 remains very high.

Russia-USA relationship. Following the Geneva summit, Joe Biden and Vladimir Putin agreed to restart arms control talks, establish bilateral discussions on cybersecurity, explore the possibility of prisoner exchanges and allow ambassadors to return to their respective capitals. The summit seems to have brought a little more rationality between the two leaders in search of “predictability and stability“. Despite the positive tone of the meeting, U.S. officials were quick to return to their usual habits, telling the media that they had been “clear” with Moscow, and that they had “warned it and stated their demands.” They added that all these “warnings” went along with threats: if Moscow does not accept the “rules of the game” defined in Geneva in a few months, it will be subjected to further pressure. The trip to Switzerland concludes Biden’s European tour, during which he reaffirmed U.S. leadership to its allies at the G7 in England, followed by the North Atlantic Alliance (NATO) meeting and the EU-U.S. summit in Brussels.

Russia-EU relationship. The EU heads of state and government discussed and rejected the initiative, proposed by Angela Merkel and Emmanuel Macron, to organize a meeting between European leaders and the Russian president. The idea is to establish “a dialogue to defend our interests,” said the French president, supported by Italy, which is a major investor in the energy sector in Russia. Poland and the Baltic states said that would send the wrong message as East-West relations deteriorate. “The European position is fragmented, not always consistent and sometimes unclear,” stressed Russian government spokesman Dmitry Peskov. According to the Belgian Prime Minister: “We cannot restrict our relations with and approach to Russia by solely sanctions and expulsions of diplomats. We should sit down at the negotiating table at some point”. He added: “At the same time, it is not the right time for a meeting between the leaders of the EU and Russia”.

Russian Far East. The development of the Russian Far East remains a major challenge for Moscow. Inhabited by only 6.2% of the population, this region accounts for 32% of Russia’s foreign direct investment, said Deputy Prime Minister, Yuri Trutnev. About 2,600 investment projects, with a total value of $86 billion, are currently being implemented with state support. On the military front, the government is trying to consolidate its position on the Northern Sea Route and defend its remote eastern borders, some of which are still in dispute with Japan. Moscow is gradually building, modernizing and training its Pacific fleet. As many as 20 surface warships and submarines, and about 20 aircraft of the Russian Pacific Fleet, have begun training in the central Pacific. According to Russian media, this is the largest Russian exercise in the Pacific since Soviet Union times.

Research & Insights #3

Inflation. On June 11, 2021, the Bank of Russia’s board of directors decided to raise the key interest rate by 50 basis points to 5.5 percent. Annual consumer price inflation in Russia reached 6 percent last month against the central bank’s target of 4 percent. This trend was driven by the easing of Covid-19 restrictions, which is helping the economy recover faster than expected, and by a sharp rise in global food and commodity prices. “Russia is in the group of countries that will be the first to restore their economic growth to the pre-pandemic level,” said Elvira Nabiullina, director of the Bank of Russia. Excluding restrictions on oil production and international passenger transport, output in most core industries has exceeded the level of late 2019. She added that inflation would probably only start to fall in the Autumn. The Board of Directors of the Bank of Russia will hold its next policy rate review meeting on July 23, 2021.

Digital Sovereignty. A bill is under review that would allow the Russian government to take action against Western technology companies that violate Russian laws on publishing content on the Internet. Foreign companies with a daily audience exceeding 500,000 Russian users per day will have to open a representative office or legal entity in Russia by August 1. The companies targeted are mainly YouTube and Google. If they do not comply with Russian law, they could be banned from advertising their services, hosting ads on their platforms and collecting payments or personal data. The government’s critics see these measures as a way to stifle a space for free expression. Moscow, for its part, accuses these foreign companies of censoring pro-Russian content and failing to remove content promoting drugs or suicide. Roskomnadzor (the Russian watchdog) has regularly accused Google of restricting YouTube access to Russian media, including RT and Sputnik.

Decarbonization. The EU plans to move to a carbon-free economy by 2050. The introduction of a carbon tax on imports is being prepared to achieve this goal. The measure would tax imports according to the amount of CO2 emissions caused by their production. It could have a significant impact on trade between Russia and the EU. We do not yet know the method of calculation to fix this tax but several major consequences seem likely. On the energy front, European demand for Russian fossil fuels could decline in favor of competitors whose oil production has a lower carbon footprint, such as Saudi Arabia. On the other hand, the rapid phase-out of coal use by 2030 is expected to increase demand for natural gas. Imports that require a lot of energy to transport and produce, such as metals, could also be taxed. However, Europe is expected to further increase its demand for these products in order to develop solar panels, lithium-ion batteries, fuel cells and electric cars. We will follow the evolution of this legislation closely.

Covid-19. The mayor of Moscow announced on Saturday a week of “non-working days” in the Russian capital. Non-essential workers were asked to stay at home. The number of cases of Covid-19 has reached its highest level for six months. The decision marks a change in tone for Russian authorities. “Over the past week, the situation regarding the spread of coronavirus infections has deteriorated sharply,” Sobyanin said. The order affects all employees in the Russian capital, a city of 12 million people, except for essential workers. The mayor also announced the closure of food courts and playgrounds, while restaurants, bars and clubs will not be allowed to serve customers between 11pm and 6am. So far, 12% of the population has received at least one dose of the vaccine. Vladimir Putin has repeatedly called on Russians to get vaccinated.

Equinox named Best Equities (Long Only) / Russia Fund for 2020

Charles Henri Hirsch, the Fund’s Co-Founder and Chief Investment Adviser attended the ceremony to collect the award on behalf of Equinox Russian Opportunities Fund

On Monday, May 31, 2021, the seventh annual Russian Hedge Fund Industry Awards ceremony was held at the Mart Cafe in the centre of Moscow. Moscow Hedge Fund Managers Club (MHFMC) and NAIMA welcomed the winners and guests of the Russian Hedge Fund Industry Awards 2021.

The awards identify the most effective hedge funds with at least one year of independent proven track record, advised by investment teams with a Russian background, regardless of the fund’s geographic focus. All winners are selected based on quantitative data for the year ended December 31, 2020, collected and analysed by MHFMC and verified by NAIMA.

Equinox is delighted to announce that Equinox Russian Opportunities Fund was named Best Equities (Long Only) / Russia Fund for 2020.

Charles thanked MHFMC, NAIMA and sponsors Bloomberg and Exante for the award and said that the positive annual return, during such a challenging year, was in part the result of some excellent investment research by Senior Analyst, Oksana Martynova, combined with Russia’s digital response to the Covid-19 pandemic

Research & Insights #2

Russia-USA relationship. Vladimir Putin and Joe Biden will meet in Geneva on June 16. This will be the first Russian-American summit after Putin’s meeting with the 45th U.S. President, Donald Trump, in Helsinki in July 2018. According to the Kremlin press service, the presidents will discuss bilateral ties, problems related to strategic nuclear stability, and other issues, including cooperation in the fight against COVID-19 and regional conflicts. “It is unlikely that just from the very first meeting, the parties will find common ground on the issues causing deep divisions. At the same time, it would be also wrong to play down the importance of this meeting,” stressed Dmitri Peskov, the Russian government spokesman.

Nord Stream 2. On Thursday, May 20, the Biden administration waived sanctions against the company in charge of the Nord Stream 2 gas pipeline project and its managing director, Matthias Warnig. According to the U.S. president, the project is almost complete and the sanctions are undermining U.S.-German ties. Indeed, Germany considered the project as a key pillar of its energy security. It plans to abandon nuclear power by 2022 and coal power by 2038. Germany has always viewed U.S. extraterritorial sanctions as unwarranted interference in its internal affairs. The $11 billion project will bring Russian gas from the Arctic to Germany through two pipelines with a total capacity of 55 billion cubic meters per year. According to the company, Nord Stream 2 is 95% completed.

Russia-China relationship. Vladimir Putin and Xi Jinping welcomed, via videoconference on May 19, the start of construction of new reactors at nuclear power plants in China in partnership with the Russian agency, Rosatom . In all, Russia will build four new reactors. The Russian president said these reactors would be commissioned in 2026-2028. “This will really allow our countries to make a significant joint contribution to the supply of clean energy to world markets, to the reduction of greenhouse gas emissions, to the implementation of the international climate agenda,” he added. “We can say that Russian-Chinese relations have now reached the highest level in history,” Putin further said.

Belarus. European Union (EU) leaders decided on May 24 to close their airspace to Belarus and adopt a new set of sanctions against Minsk. The Belarusian government is accused of hijacking a European airliner to arrest a dissident, Roman Protassevich, former editor-in-chief of the opposition media Nexta. “This was effectively aviation piracy, state-sponsored,” according to Ireland’s foreign minister. A Russian Foreign Ministry spokeswoman denounced the hypocrisy of Western leaders. She recalled the forced landing of the plane of Bolivian President Evo Morales in 2013, when the United States believed that the fugitive Edward Snowden was on board. The EU’s decision was followed by the cancellation of several Air France flights and an Austrian Airlines en route to Moscow, as Russia would not validate new flight plans avoiding Belarusian airspace.