Russian stocks: what I don't recommend buying!

The flight of foreigners from Russian equities continues to break multi-year records. The investor exodus, a record since at least 2018, has continued for six months out of the last seven. In September, non-residents dumped securities for more than $1 billion. Against this background, the RTS index ended September with a record drop of 6.3% since March, and since the beginning of October it has fallen by another 1.2%, hitting a four-month low.

Which stocks on the Russian market are primarily affected by capital outflow and are not recommended for purchase in the current situation? Nikolay Dudchenko, an independent financial analyst, answered Fortrader magazine's question.

- Indeed, according to the Financial Markets Risk Review, the CBR reported that in September, non-residents and subsidiaries of the foreign organizations sold shares worth 83.8 billion rubles. However, the CBR goes on to say that "other categories of participants were buyers: systemically important credit organizations (SICCOs) purchased shares worth RUR 52.6 billion, while NFOs and other banks purchased shares worth RUR 22.1 billion and RUR 9.1 billion, respectively. If we pay attention to the Central Bank's statistics, the flight of foreign capital continues. The last time a serious outflow was observed in March - minus 90 billion.

In my opinion, there is nothing super dramatic about the current situation. The outflow peaks at the height and beginning of the second wave of the pandemic, which, on the whole, is quite logical. March and September have been the worst months for the US indices so far this year, and it is simply naive to expect EM to continue to grow in this situation. It is clear that if the situation with the virus continues to deteriorate (which equals a drop in production activity and, consequently, in demand), EM will continue to grow. for oil), then the stock markets will clearly not please investors.

As for the risks for Russian companies' shares, it seems that capital outflow will be primarily observed in the least stable industries.

• Separate estimates, most severely and moderately affected the following sectors: transportation activities, non-food retail trade (mainly car dealers), manufacturing sector, vehicles and equipment, household appliances, furniture, jewelry, sporting goods, metal products, electrical equipment, clothing.
• Not affected by the crisis food production, chemical production and gas production.
• Benefited from the crisis: pharmaceuticals and the manufacture of medical instruments and equipment.
• Other experts also note that non-oil extraction, the tourism industry, and the construction sector are also at risk.
• Investments in the financial sector, telecommunication sector and oil sector can be classified as moderate risks.

Based on this, in my opinion, you should avoid investing in any transportation-related companies (e.g, Aeroflot or UTair) and manufacturing (e.g., Kamaz). Extreme caution should be exercised in the manufacturing sector (companies such as, for example, Nizhnekamskneftekhim or Akron) and particularly selective in the much-loved energy sector (eg, PJSC Gazprom shareswhich, from my point of view, were not attractive for investment even before the pandemic, and now additional risks in the form of sanctions are being added).