Coronavirus has created a toxic backdrop for Russian stocks

Russia began easing its Covid-19 lockdown this week. The country has the world’s third-highest number of confirmed cases. New daily infections have been running at over 10,000 in recent days. A third of the Russian economy has “ground to a halt”, writes Jake Cordell for the Moscow Times, but the government cannot afford to turn on the fiscal taps. Russia needs oil at $42 a barrel to balance the budget, far away from current prices of around $30 a barrel. The “modest” rescue package will hardly cushion the pandemic blow.  

The limited stimulus is increasing the chances of a “prolonged economic downturn”, says Liam Peach for Capital Economics. The severity of the Russian outbreak means that restrictions remain tighter than in many other countries even after lockdown easing. 

Already discontent with stagnant living standards, the public is souring on Vladimir Putin, whose approval rating has fallen to a 20-year low. This all makes for a politically “toxic backdrop” as Putin looks to reform the constitution in order to extend his rule beyond 2024. 

The Russian stockmarket soared by 39% in 2019, but is down about 13% since the start of 2020. On a price/earnings ratio of 6.7 the benchmark index is undeniably cheap, but this is partly thanks to Russia’s poor record on property rights and the rule of law, which leaves businesses at constant risk of expropriation if they get on the wrong side of the government.