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Tech sector drives diversification of Russian stock market

* Tech sector weight on Moscow Exchange has doubled in 2020

* Energy sector weight declined as oil prices plunged

* Mail.Ru to replace Alrosa on blue-chip MOEX index

* Headhunter, Ozon to be added to MOEX from Dec. 18

MOSCOW, Dec 17 (Reuters) - Russia will add two new names from the online sector to its benchmark stock market index on Friday as technology firms lead a diversification drive on the stock market, long skewed towards the dominant commodities industries.

Russia has been slower to catch on to this global trend than the United States, China and other emerging markets. But this year the weight of IT companies on Russia’s rouble-based blue-chip MOEX index will more than double.

On Friday, technology firm Mail.Ru will replace diamond producer Alrosa in the MOEX index, the Moscow Exchange said, in a symbolic shift away from commodities.

Depositary receipts in two of the latest Russian companies to stage New York initial public offerings, recruiter Headhunter and e-commerce firm Ozon, will be also added to the exchange’s MOEX and the dollar-traded RTS indexes.

Russia’s IT sector is close to the European average of representing around 8% of the stock market, according to estimates by ITI Capital. But it is still relatively small compared with the 27% share in the United States and 17% in China.

Internet company Yandex, known as Russia’s Google , stormed this year into the MSCI Russia index, which captures Russian large and mid-cap securities, speeding up the shift towards new economy companies.

WEIGHTING SHIFT

In 2013, when prices for oil, Russia’s key export, hovered above $100 a barrel and Moscow was clear of the sanctions that the West would impose a year later after the annexation of Crimea, energy firms made up more than half of the MOEX index.

In 2020, amid a historic plunge in oil prices below zero and the COVID-19 pandemic, the share of oil and gas companies, energy firms and utility providers slipped to 40%.

The MOEX has since rebounded to record highs with online-focused companies flourishing as coronavirus lockdowns kept consumers at home.

Riding the wave of retail investor account openings on its platform this year, the market capitalisation of TCS Group, which is listed in Moscow and London and runs online-only Tinkoff bank, exceeded that of VTB, Russia’s second-largest bank by capital.

Fragmentation and the currently low penetration of Russia’s online services industries set them apart from developed markets, said TMT analyst at Gazprombank, Anna Kupriyanova, who sees plenty of room for tech stocks growth in the coming years.

Although the shift towards the online sector was rapid this year, the further advance of tech companies could face Russia-specific headwinds.

“The transformation of the Russian market into the non-oil and gas sectors will be a long one due to the economy’s poor flexibility,” said Iskander Lutsko, chief investment strategist at ITI Capital.

“At the same time, sanctions and a shift from traditional energy all over the world could accelerate this process.”

Reporting by Alexander Marrow and Andrey Ostroukh; editing by Katya Golubkova, Larry King

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