Tuesday, 03 May 2011 11:58
Sell in May or, Stay The Course?
Thursday, 28 April 2011 08:55
Fed Boosts Optimism and Commodities
By Chris Weafer
Chief Strategist, Uralsib
Yesterday’s statement from the US Fed is bullish for equity market sentiment but negative for the dollar. The Fed again said that rates will stay low for an “extended period”, words that traders interpret as meaning no rise in 2011. It also said that it will do whatever is required to keep economic recovery on track. That is a very strong combination for commodities, in particular, and for commodity dependant economies.
Tuesday, 26 April 2011 10:00
Allowing A Strong Ruble – Lesser of Two Evils for Russia
Sunday, 24 April 2011 12:22
From D.C. to Damascus
Friday, 22 April 2011 10:27
Fund Flows: Modest But Positive
Thursday, 21 April 2011 06:53
I-Positive for Russia bourses
Wednesday, 20 April 2011 10:59
Widows & Orphans Welcome…(+ Exodus of Ministers from State Companies)
Tuesday, 19 April 2011 08:16
Careful What You Wish For
Monday, 18 April 2011 12:20
Rope-a-Dope or, Going Down?
By Chris Weafer
Chief Strategist, Uralsib
“If you dream of beating me, you’d better wake up an apologize” ...…Muhammad Ali before the Rumble in the Jungle fight
Equity markets have been hit with a lot of negative sentiment in recent weeks. But, despite some small price weakness, i.e. the S&P 500 is only off 1.0% over the past two weeks, the major global markets have, so far, proven resilient. The question is, whether sentiment can continue to absorb body blows such as the Japan disaster, rising China inflation and poor US corporate earnings or, whether the weight of newsflow is close to sending markets a lot lower? The same can be said for the oil price.
No doubt, investors and traders would be happier if prices fell by another 5% to 10% and then to buy for the medium term. But nobody yet wants to be the seller to force that. As we head into another vacation period, markets will continue to be nervous while waiting for the next batch of major earnings updates in the US and for the indicators of economic activity in that market. Investors will be more comfortable with cash for now.
Most western markets will close on Friday for the Good Friday holiday and, traditionally, volume activity in these markets is much lighter than usual all week as market participants take vacation.
Russia will issue the March macro report during the early part of this week. Investors are hoping to see some improvement in activity after a disappointing start in January and February. Unemployment is expected to be unchanged, at 7.4%, from the end of February, retail sales will probably also remain unchanged, at 3.2% year on year growth, while investment activity is expected to show an increase of 2.4% year on year.
Finance Minister Kudrin is on a mission to remind his cabinet colleagues that high oil revenues cannot be relied on. At a press briefing in Washington over the weekend, the Finance Minister said that he expects the price of oil to fall to $60 p/bbl within the next two years. The main audience for that comment is any group in government that might be tempted to try and raise budget spending ahead of the elections and also to add pressure to maintain the reform momentum.
Property developer Etalon successfully placed 82.1 million GDRs at $7.0 each to raise $575 mln late last week. That is the third successful placing by a Russian issuer this year and brings the total raised to $1,236 mln. Nomos Bank is expected to price its IPO on Monday with a reported price range that has tightened to $17.25 to $17.50 p/GDR.
Those four successful placings, i.e. assuming Nomos Bank, don’t quite balance out the aggregate value of between $3.4 bln and $4.1 bln for the four issues that were pulled by the issuers because of a lack of investor support at the targeted valuation. The main message is that investors are unwilling to pay a full valuation for issues where the primary objective is to raise cash for core shareholders. For those issues, buyers want a bigger discount than the core shareholders have, so far, been wiling to give
This will be a busier week for earnings reports in the US and investors react to these reports will likely be the major driver of the US and global markets this week. Citigroup is the headline act on Monday with Goldman Sachs and Bank of New York on Tuesday.
There are no important economic reports due on Monday. On Tuesday the housing starts and building permits update will be published in the US and, on Wednesday, the March existing home sales report will be published. Thursday will be the last working day of the week and, in the US, will bring a batch of updates.
Emerging markets recorded a second straight week of inflows last week after a run of ten weeks with net redemptions. Russia was again the only country amongst the BRICs to report a net inflow, albeit down on the previous week and with 70% of the money coming via ETFs. For the week ended last Wednesday, EPFR Global reported a net inflow of $2 bln for all emerging market (EM) funds. That was down on the $5.7 bln received the previous week.
Russia funds reported inflows of $262 mln, down from the $402 mln of the previous week, but brings the total received since the start of the year to $4.1 bln. Of the total received last week, $183 mln, or 70%, was invested via ETFs that are mainly focusing on Russia as an oil theme.
Russia’s markets fell harder than the MSCI EM Index last week as stocks in the oil and steel sectors traded lower. The faster pace of growth in China inflation and the recent US growth downgrade by the IMF have raised concerns that demand for materials may soon decline and weaken prices. Over the five days the RTS lost 4.4%, MICEX fell 4.1% and the IOB Index of GDRs traded in London closed 4.9% down. That compares with a loss of 2.0% for the MSCI EM index and a 0.6% loss for the S&P 500. Year to date the Russian indices are still well ahead. The dollar denominated RTS and IOB Indices are up almost 15% while MICEX lags with a gain of 5.5%. The MSCI EM is 2.6% better and the S&P 500 is up 4.9%.
Note: Tables with the best and worst stocks from last week and also year to date are at the end of this note.
The best performing stock last week was Hong Kong listed IRC, which rose almost 20% after reporting progress concerning its production expansion in China. At the other end of the table, X Five Retail Group lost over 10% after its recent results update.
Investors in all international equity markets were rattled with the higher than expected inflation number in China and a lackluster start to the US earnings season. Over the past five days the FTSE All-World Index fell 1.1% to cut the gain since the start of the year to 4.3%.
The price of gold hit a record last week as investors are again spooked by fears of a worsening of the eurozone debt crises and prospects for a rally in the dollar remain weak. The price rose by 0.9% on Friday to end at $1,486.0 per ounce, i.e. having earlier traded at a high of $1,489.0 per ounce. Silver closed the week at a 31-year high and with a 4.8% gain for the week. The price has now rallied 38% year to date.
The LME Index of prices for six industrial metals fell 0.8% on Friday, its fourth straight day of declines, as traders worry that China demand may not grow as previously expected or may even decline for some products if further tightening hits the economy. Copper and nickel led the declines last week with respective losses of 5%.
The price of wheat fell 6.3% for the past five days as both Russian and Ukraine officials talk up prospects for their respective country harvests this year. Corn drifted 3.2% lower to cut the year to date gain to 19%. Sugar remains out of favour and last week fell by almost 8% to bring the year to date loss to 28.5%.
This is traditionally a very quiet week in international markets as market participants take vacation around Easter. One week later will see the start of the May holiday period in Russia. Without a significant catalyst, investors are unlikely to make any major moves until mid May.
OKG-2. The swap ratios for the merger or OGK-2 (OGK2 RX) and OGK-6 (OGK6 RX) are expected to be announced in the week starting April 25th. Both companies are controlled by Gazprom. We prefer to play this via OGK-2 and expect to see the stock trade higher ahead of, and during the merger.
MRSKs. The electricity distribution companies face a cap of 15% tariff increase for 2011 and 2012. This is a more negative position than previously thought and, as a result, we have placed all of the MRSK companies “under-review” while we calculate the impact of this less favourable outlook on valuations.
Oil Services. Both Integra (INTE LI) and Eurasia Drilling (EDCL LI) will release 2010 financial results later this week. We have a buy on both companies with upside to respective target prices of 47% and 24%. The industry is very well placed to benefit from the increase in oil field spending expected in the next few years.
Armada (ARMD RX) completed its SPO of $22 mln last week. The stock is our top pick in the I.T. sector with upside to target price of almost 50%. Now that the SPO is completed the company should attract more interest from investors looking to position in Russia’s fast growing industries outside of extractive industries.
TNK-BP. The dispute between BP and AAR has moved into a new phase with the deadline to resolve the issues between both parties extended to May 16th. The BP CEO met with PM Putin on Friday. It remains our view that the best way to position for an eventual settlement in this dispute is via TNK-BP (TNBP RU) commons and Preference shares. We recommend adding into any weakness.
Banks. Nomos is expected to successfully place its IPO this week. That should highlight the attraction of the other 2nd tier banks in the country, e.g. Bank St Petersburg (BSPB RX) and Vozrozhdenie (VZRZ: RX). We calculate upside, to respective target prices, of 31% and 46% for these banks.
Gold. The price of gold reached a new record last week and silver traded at a 31 year high. Despite that, some of the gold shares are still amongst the performance laggards year to date (see table at end of this note). The price of god looks set for further gains as eurozone debt fears continue to rise and dollar weakness appears to have some way to go. Petropavlovsk (POG LN: Buy) has the highest upside to target price at +49%.
Mail.ru (MAIL LI) shares rose 8% last week, partly because of the news that Yandex is preparing for marketing ahead of a possible NASDAQ IPO. The stock is down 6% year to date and we rate it as a sell with downside to target price of 16%. However, if the Yandex issue is confirmed then that might provide some short-term price support for Mail.ru. It is still a sell beyond that.