After the long Christmas break, the domestic Russian market will reopen on Wednesday.
The Russian currency (RUB) outperformed other currencies in Europe, the Middle East and Africa since the start of the year albeit in low volumes, so its first move when the Russian market opens could “point towards a weaker ruble,” Benoit Anne, a strategist with Societe Generale, said.
But he added that the weakness will “likely be temporary” and investors should “watch for an attractive entry level” if the ruble does go on a weaker footing.
“We are fundamentally bullish on the RUB, especially over the first part of the year,” said Anne.
“There are many supportive factors, including the strong improvement in the global risk backdrop, the strengthening of the domestic policy framework, both on the monetary and fiscal sides, and last but not least the impact of the much-awaited liberalization of the local bond market.”
Starting this year, foreign investors will be able to buy and sell Russian ruble-denominated Treasury bonds, the so-called OFZ, through Euroclear, the world’s biggest bond settlement system.
Analysts have said the move was likely to attract strong interest from foreign investors, who are expected to pour tens of billions of dollars in the market. Anne expects the opening of the OFZ market to bring “major capital inflows” to Russia.
At the same time, the downside risks to oil prices “appear to be limited at this point” due to the improvement in the global economic outlook, which should be supportive for the Russian currency as well, he said.
“On this basis, we look forward to watching the RUB price action over the next few days—starting tomorrow- with the view that the RUB will likely be a star performer in the emerging markets foreign exchange universe.”