The Russian stock market continues to forge the way to the top

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Last Thursday, the main Russian stock indices Mosberg (-0.76%) and RTS (-1.34%) ended with strong drawdown in relation to the levels of the previous closing. They retreated from recent highs following a clear deterioration of external background. However, the local equity market still looked much better than one would expect, focusing on the dynamics of important external indicators. For example, crude oil futures yesterday fell by almost $ 3, or about 4%. Key stock indexes in Europe and the United States have lost between 1% and 2%, which is a very large-scale motion.
The impetus for such a significant deterioration in sentiment on the external markets have increased fears of worsening trade war between the US and China. An official statement about the failure of trade negotiations came in mid-may. However, last week the US and China has taken a number of mutual hostile actions that undermine the ongoing hope of achieving a reasonable compromise.
The next “victim” of the new us economic policy may be the European Union. Well, this morning it became known that the Ministry of Commerce plans to apply countervailing customs duties against countries that artificially lowered the rate of its currency relative to the U.S. dollar. It looks like a single logical trend. The current U.S. President has repeatedly and unequivocally gave to understand that it is configured on the new industrialization in the United States. In this scenario, the share of foreign goods in the market of this country should be reduced. The most effective tool for this is the increase in import duties. In addition to stimulating domestic production, this measure will add to the Federal budget of the United States.
At the close of formal trading session, the June futures on the RTS index (RIM9) came to the state of backwardly a value of 23 points, or about 1.8% relative to the reference indicator. Futures market participants remain negative assessment of the medium-term prospects of the RTS index.
Despite a significant drop index Mosberg held at the end of the day, the most liquid stocks ended mixed with an irregular deviation in the range of 1-4% compared to the levels of the previous close.
Significantly weaker than the market was closed the papers Sberbank JSC (SBER RM, -2.78%), Sberbank-up (SBERP RM, -1.73%). Their relative weakness was associated with substantial intraday weakening of the rouble against major foreign currencies. Maybe additional negative effect of these securities was the message that “Sberbank” early sought the debt of JSC “Antipinsky oil refinery” in the form of foreclosure on the pledged shares of the parent holding company Vikay Industrial Limited. As a result, the credit organization has received indirect control over 80% of these troubled assets.
Paper Mechel JSC (MTLR RM, -4.25%), Mechel-Pref (MTLRP RM, -3.56%) fell heavily on the background of published mixed operational and financial results of the Issuer for the 1 quarter of 2019. During the reporting period the company to a different extent reduced the production of coal, iron, steel, electricity and thermal energy in comparison with the 1st quarter of 2018. However, the reduction in coal production of 29% was planned.
It was necessary in order to reduce accumulated stocks. The company’s revenue under IFRS for the same period practically has not changed. In this case attributable to shareholders net profit increased by 244% compared to the 1st quarter of 2018 and 595% compared to 4Q 2018. Such a significant improvement in financial results was due to the positive effect of exchange rate differences. As we can see, the shares of “Mechel” continue to be a high-risk speculative tool in conjunction with a high debt load of the Issuer.
Significantly stronger than the market closed shares of VTB (VTBR RM, +10.13%). Lights has risen strongly in the last hour of trading due to the message that in 2019-2022 year, the Issuer may direct the payment of dividends 50% of net profit under IFRS. However, dividends on the shares of VTB for 2018 can be 0,001099 RUB per share, which corresponds to the rate of payments at 15% of net profit under IFRS. Thus, their current dividend yield is still only about 2.8% from yesterday’s closing price.
This morning the futures on US stock indices show a fairly strong increase in the cost in the range of 0.3-0.5%. Contracts on Brent crude after yesterday’s drawdown rose by 1.2%. Gold futures lost 0.2%. Chinese stock index Shanghai Composite rose by 0.1%. Nikkei225 has lost 0.3%.
The external background before bidding in Russia can be characterized as positive. This creates conditions for the opening of index Mosberg with moderate increases.
The index Mosberg with a moderate gain of around 0.2-0.3%, near the mark 2625 p. as the nearest supports will be the levels of 2610, 2600 p. Significant resistance is seen around 2640, 2650 p.
In the first minutes of trading, the index Masuri will play morning a noticeable improvement of the external background. Further significant increase of the local stock market remains in question. It can be kept the fact that oil prices have not yet recovered to the level of daily ago.
In the second half of the day is the key external reference point for participants in the local trading will remain the dynamics of oil futures. Some influence on the local stock market may also have the publication of the April statistics on the volume of orders for durable goods in the United States (15.30 GMT).
Vitaly Manzhos,
Senior risk Manager,
IR “Algo Capital”