The weekly fund flow report from EPFR Global shows a big pick up in new money allocations to emerging markets last week. Investors remain rightly optimistic about prospects for stock market gains in the autumn. GEM Balanced funds took in $1,741 mln for the week to last Wednesday, up from $416 mln the previous week. That brings the total for these funds to $3.8 bln so far in June, i.e. despite the considerable volatility in global markets. China funds are the most favored by investors as that country continues to report strong economic growth. Last week, China funds took in $410 mln, up from $136 mln the previous week. Brazil funds continue to be the least favorite and reported net redemptions of $210 mln for the week. Brazil funds have now lost money in nine of the last ten weeks. Russia funds are still attracting net new money, albeit last week’s flows were more modest that seen recently. In the week to last Wednesday, a total of $28 mln was received, down from $108 mln the previous week. Turkey funds were flat for the week.
The late rally in the US equity markets and a small gain across Asia today should help Moscow’s bourses to open a little better this morning. But there will be very little conviction either way. The high-beta global exposed stock, such as steel, took the main hit yesterday and will likely reflect the opening gain better than others today. Rosneft, and the oils generally, look set to extend recent weakness due to the combination of East Siberia tax uncertainty and stock overhangs (BP’s stake in Rosneft and Conoco’s stake in LUKoil). Today is quadruple-witching in the US market and that always creates extra uncertainty and volatility.
The price of Brent is currently trading at $78.68 p/bbl, which should also help support the ruble at the opening, albeit WTI is lower at $76.53 p/bbl. Metal prices, down across the board yesterday, have rallied very modestly today. Copper is 0.5% better.
The dollar is a little weaker as risk appetites slowly return. The dollar-euro rate is at $1.2396 this morning. Gold last traded at $1,245.96 per ounce.
The main event in Russia today will be President Medvedev’s keynote address at the St. Petersburg Forum, scheduled for 10.40. Other sessions of interest today will include a discussion about the future of the gas market, which will include Deputy Prime Minister, Igor Sechin, on the panel. That is at 14.00. Finance Minister Kudrin will talk about budgetary policy in another afternoon session.
Moscow’s bourses opened with a solid gain yesterday as a response to the previous gain in the US markets and the oil price strength. But, as the US markets opened with a decline, Moscow’s indices quickly followed suit. The RTS, always slower to react, closed almost flat at 1,400.7, while MICEX ended down 1.0% at 1,356.2. Rosneft was again the worst performing blue chip with concerns over the future of its tax breaks in East Siberia plus the prospect of BP selling its strategic investment in the company hurting investor sentiment. It closed down 5.5% on MICEX. LUKoil closed down 2.9% as BP’s likely sale of Rosneft reminded investors that a portion of Conoco’s 20% equity stake in the company is also looking for a buyer. Sberbank was the best performing blue chip, gaining 2.3% partly as the safe proxy in Russia and also because of the gain in the ruble.
The ruble responded to the further gain in the price of oil and closed higher against both the dollar and the euro. Against the former, it closed 15.5 basis points better at 31.0, while against the latter it ended 7 basis points higher at 38.29.
In London, the IOB index of Russian GDRs also fell over the last hour and ended the day off 1.0%. Rosneft was also the main casualty ended down 5.5%. The steel sector shares also fell due to concerns in the US market that the pace of growth is slowing. Evraz lost 2.2%. In the US ADR market Mechel did not participate in the late market rally and closed down 3.9%. The mobiles ended down 2.0% each as part of the general market move.