> Almost all markets and assets are now closely correlated, so stock-specific stories have relatively little impact on performance. This will continue into year end. In Russia, oil and gas majors, the steel sector and banks are, and will remain, at the forefront of that trade. Second-tier names have been more volatile, but on relatively low volumes. Again, this is not expected to change over the remainder of 2011.
> Russia's macro and fiscal position continues to improve, and is in good shape relative to most other countries. Russian equities are cheap. Excluding the extractive industries, Russia's 2011E P/E is 8.5, while the 2012E P/E is 7.0. This compares with the MSCI EM Index's respective 9.5 and 8.5. Though this does not allow Russian equities or the ruble to buck the global trend, it does allow for the sort of outperformance seen in October, i.e. only against a favorable world backdrop.
> Later this month, there may be more of a domestic bias to the Russia story as we head into the Duma elections on December 4, and because the country is now expected to complete WTO entry negotiations by mid-month and formally join the world trade body in mid-December. This month's strategy theme looks at the consequences for the economy and individual industries, while each of the sector analysts identify stocks they see as best positioned both for WTO membership and the prevailing global market conditions expected over the medium term.
> The Brent price held up relatively well in October despite weakness across other commodities. Although a slide into recession in the US or EU, and/or a much lower pace of growth in China would undermine price support, the current global economic concerns are balanced with a steadily rising oil supply risk premium because of the still dangerous politics in North Africa and the Middle East. The main driver of the oil price in November should again be the mood on global markets and trend in the dollar/euro exchange rate. There may be more political noise within OPEC, however, as the organization prepares for its next ministerial meeting in mid-December.
> Fund investors started to return to emerging markets in October, albeit still avoiding country-specific choices and sticking with the relative safety of GEM Balanced funds. Toward month end, Russia saw a net inflow for the first time in over four months. Whether this proves to be just a blip or the start of a positive trend will be determined by events in Brussels, Washington and Beijing, rather than in Moscow for now.
Chris Weafer
