The Russian stock market is that highs
For the second-third quarters of the index of the Moscow exchange on the background of weak ruble and high oil prices increased by 27%. In September, he updated the historical maximum, exceeding 2430 points. Engines of growth were the shares of oil and gas sector: Rosneft, LUKOIL”, “Tatneft”, “NOVATEK”, also reached record levels.
The uptrend remains in force, the nearest upside target for the index Mobimii is 2500 points. Recent weeks we are seeing increased demand for commodity assets as well as recovery currency, bonds and stocks in emerging markets. This creates a positive sentiment for the Russian stock market in the coming weeks, the index Mosuri will continue to update historical highs.
The risks for the Russian stock market – the new sanctions on Russia, tensions in emerging markets, the looming correction in U.S. stock indexes remain elevated. This ensures increased volatility in the fourth quarter. Note that in the case of downward correction of the us stock indices by 20-30%, strong sales will follow in the Russian stock market. In our view, it would be a good time to enter the market.
Figure 1: dynamics of the index of Mosuri from the beginning of 2018
The geopolitical factor continues to be important for the Russian stock market. In this respect, the key dates are 6 and 12 November. On the first Tuesday of November mid-term elections to Congress and the U.S. Senate. What will be their new composition, will depend on how will develop the relations between Russia and the United States. Sanctions pressure on Russia
any case will continue (on the approach of the sanctions associated with the “business Skrypalia”) but passions can go on the decline.
Figure 2: Dynamics of the RTS index since the beginning of 2018
We will remind that on November 12 set a deadline by which foreign investors should leave investment in RUSAL and EN+ group at the request of the U.S. Treasury. This date was postponed several times at a later date, except, with reservations, the American Ministry of Finance has allowed the transaction with RUSAL after this deadline. This may indicate progress in the talks, the Russian aluminium company with U.S. authorities. Note that the talk about closing dollar accounts for Russian state-owned banks and all came to naught.
Sanctions risks Russia are declining, which is positive for the Russian stock market, particularly for Sberbank. Bounce after a 25% plunge in the summer is not yet completed. We maintain our positive view on shares of the largest Russian Bank. For the year net profit of “Sberbank” will be 900-920 billion.
The Finance Ministry is encouraged to send 50% of this amount in dividends, but it is more likely that, as this year’s payout ratio will amount to 35-40%. By the end of 2018 “Sberbank” will direct on dividends 320-360 billion rubles., this corresponds to a dividend of RUB 13-15 per share. In 2019-2020, the share of Sberbank in the Russian banking market, as well as profits and dividends continue to grow, the growth rate is about 5% per year. “Sberbank” is a “blue chip” dividend yield above 7% (i.e. higher return on deposits), which makes it attractive for investors.
Figure 3: Dynamics of the shares of “Sberbank” with the beginning of the year
Rising trend in oil retain the investment attractiveness of the company’s oil and gas sector, “Gazprom”, “Gazprom-Neft”, “LUKOIL”, “Rosneft”. To a lesser extent, NOVATEK and Tatneft, as they are already quite expensive priced market. But from investments in shares of the metallurgical sector advise. A trade war between the US and China may lead to a decline in demand for steel products from the past. And China accounts for about 50% of the world production and demand for steel. Competition among steelmakers may increase and prices for steel products to be under pressure.
Investment ideas for the fourth quarter:
SBERBANK, THE GROWTH POTENTIAL OF 10-20%
“Sberbank” is the main “blue chip” of the Russian stock market. Current levels are attractive to buy shares of Sberbank, growing company with a solid dividend. Risks the extension of US sanctions, in particular the closing dollar accounts for Russian banks in recent years has decreased.
“RUSAL”, GROWTH POTENTIAL 10-30%
The determining factor for “Rusala” – sanctions by the U.S. Treasury. The latest news say in favor of reducing the pressure of sanctions, against this background of the action can continue
a rebound to the upside.
“ENEL RUSSIA”, THE GROWTH POTENTIAL OF 10-20%
The shares “Enel Russia” considerably dipped and are now at attractive buy levels. In our view, Enel has taken a principled decision to withdraw from the Russian asset.
Speaking in favor of this reducing company costs, high dividends (banker takes money) and finding buyers for the Reftinskaya GRES is a key asset of the company. After this transaction, the company may pay a substantial special dividend (about RUB 0.4 per share), which will lead to a surge of interest of market participants to the paper.