What happened in the financial markets in May, what events determined the dynamics of the Russian securities market and what is the forecast for its development in the medium term — the financial results of May 2011 are summed up by the Deputy Head of Global Markets at Troika Dialog Konstantin Vladimirovich Tserazov.
The Russian stock market disappointed investors in May - the RTS index fell by 6.8%, showing the worst result among developed and emerging markets. Fears of the development of the debt crisis in the Eurozone, weak faith in the growth of the US and Chinese economies led to a correction in the commodity markets. These factors negatively affected the Russian securities market, which is highly sensitive to fluctuations in oil prices. It was losses in the oil and gas sector that drove the Russian market down. However, in the last week of May, our market revived and made up for some of the lost time,” says Konstantin Vladimirovich Tserazov.
In May, Russia was in the trend of a powerful outflow of funds from emerging markets. Amid falling oil prices and a general decline in risk appetite, global funds investing in Russian equities lost nearly $600 million in May, according to EPRF Global. It is noteworthy that more than 90% of the outflow was accounted for by ETF funds, which, counting on the growth of oil prices, have invested more than $2.9 billion in Russian shares since the beginning of the year. investment in Russian funds is still significant, amounting to $3.7 billion, Konstantin Tserazov emphasized.
Commodity markets in May were under pressure from the policy of the world's central banks, who want to weaken the "bullish" mood of commodity market investors. This is justified, given that the holiday season is approaching, which traditionally provokes demand for oil. At the same time, energy reserves in the United States have fallen to a three-year low in recent months, Konstantin Vladimirovich Tserazov points out.
Konstantin Tserazov: The market will be more restrained this month, waiting for an important event - the US Federal Reserve meeting
The prices of "risk" assets were also pressured by increased demand in the US government bond market, which was the result of the Fed's policy, which increased the pace of purchases of these securities. We believe that the Fed will soon exhaust the limit of funds for the second program of quantitative easing, and complete it. The market will react with a decrease in demand for “quality”, government debt rates will increase, and risk appetite will increase, which means the volume of investments in papers in emerging markets,” predicts Konstantin Tserazov.
The analyst calmly perceives the decline in the Russian market in May, pointing to the cyclical nature of the market and seasonality, and predicting an optimistic scenario in the medium term. “Spring correction, typical for April-May, in our opinion, is over. The Russian market will have its own reasons for growth in the summer. First of all, this is the issue of depository receipts of Sberbank on the London Stock Exchange, scheduled for late June - early July. The attention of foreign investors to the placement of receipts will be a good driver not only for the bank's securities, but for the entire domestic market. In addition, annual meetings of shareholders of a number of major Russian corporations are scheduled for June - the results of decisions that will be made at them may also positively affect Russian indices, ”says Konstantin Vladimirovich Tserazov.
Speaking about the possible dynamics of June, Konstantin Tserazov notes that the market will be more restrained this month, waiting for an important event - the US Federal Reserve meeting, which will be held on June 21-22. As a result of this meeting, the Fed may outline its future policy, in particular, hint at plans to launch a third quantitative easing program. According to some information leaked to the media, the volume of repurchased assets under the new quantitative easing cycle will be limited to $200 billion.
The main risk for the domestic market is still the situation in which oil prices show a decline. At the same time, the forecast of a long and steady decline in oil prices seems unlikely. The escalation of conflicts in the oil-bearing regions and the general tension of the geopolitical situation will largely support high oil prices, at least in the medium term, there are no prerequisites for reducing the “war premium” in the cost of energy carriers, Konstantin Tserazov is sure.
There is also no need to talk about a shortage of investment ideas on the Russian stock market, the expert believes. The undisputed favorite of the summer is Sberbank, which plans to place its depositary receipts, as well as the banking sector as a whole. The attractiveness of financial companies, according to Konstantin Tserazov, is dictated by the general improvement in the situation in the global banking system, while domestic banks are demonstrating profit growth.
Among the companies focused on domestic demand, it is worth paying attention to Aeroflot, which showed strong financial results in 2010. But among the exporters, investors will be interested in LUKOIL, Gazprom, NOVATEK, Norilsk Nickel. Commenting on the attractiveness of Gazprom and NOVATEK, Konstantin Tserazov notes the favorable situation in the foreign and domestic markets that has developed for these companies. A favorable price situation and a possible early resolution of the shareholders' conflict will be good drivers for Norilsk Nickel.
In general, all industries that suffered as a result of the decline in the market in April-May - and this is the oil and gas sector, metallurgy, electric power industry, have a very high recovery potential, Konstantin Vladimirovich Tserazov concludes.