EUR/RUB Hedging Scorecard

We again recommend using participating forwards to hedge rouble receivables. While this gives a full hedge against a weakening of the rouble, it would allow the investor to benefit in part from rouble strengthening.

Methodological Appendix
Variables included in the scorecard are listed below. Momentum of these variables is measured on a daily or monthly basis depending on the publication frequency. Each variable has a subjectively determined fixed weighting in the scorecard factor.

Macro: Retail trade, Fixed capital investments, Industrial production, trade balance
Carry: US Libor and Euribor rate spread vs. the Moscow Prime Offered Rate (MosPrime) in 3-month period, Russia CDS
Money: Russian CPI, outstanding private sector bank loans, CBR deposit account balance
Global: Brent crude oil, S&P 500, ISM index, VIX index
Technical: RUB basket rate moving average for 20, 50 and 100 days.
EUR/USD: Dans ke 1 and 3-month forecasts, EUR/USD 20-day moving average Weights of these factors for the final EUR/RUB score are determined partly endogenously.
Macro: Weight varies between 10% and 15% depending on market conditions
Carry: Weight varies between 10% and 15% depending on market conditions
Money: 10% fixed weighting  
Global: Weight varies between 20% and 30% depending on market conditions  
Technical: 10% fixed weighting
EUR/USD: 30% fixed weighting

Hedging Indication
In choosing hedging ratio and volatility position, we take a rather conservative approach concentrating on strategies where the worst case is always fully known. Hedging ratio is chosen based on market uncertainty, i.e. rouble and global volatility together with rouble outlook. Ratio varies between 50% and 100%. Optimal volatility position is determined by the absolute level of rouble-implied volatilities together with our rouble and volatility outlook.  

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