20130821-富瑞金融香港公司-Global_Equity_Strategy_Russia__Ambiguous_Returns_15页_918kb

Global Equity Strategy Summary: Russia

Core Content

This document provides an analysis of the Russian equity market in the context of global equity strategies. It outlines the market's performance, valuation metrics, economic indicators, and company-specific insights. The focus is on the performance of the MSCI Russia Index and its comparison with other global indices, along with the financial health of major Russian companies.

Key Takeaways

• Economic Performance: Russia is expected to have real GDP growth of 2.5% in 2013 and 3.3% in 2014, according to the IMF. The country maintains a current account surplus, and credit growth is aligned with deposit growth.
• Equity Market Performance: The Russian equity market has outperformed most emerging market bourses but has lagged behind developed markets. Valuations are extremely low, with a 12-month forward PE of 5.5x, below the 5-year average of 6.4x.
• Oil Dependency: Russia's economy is heavily dependent on oil prices. Despite the Ural crude oil price being close to all-time highs, the market remains vulnerable to oil price declines.
• Fiscal Concerns: The government's fiscal and budgetary positions are unsustainable, with the federal budget deficit widening. This has contributed to a weak Ruble.
• Reserve Fund: The Reserve Fund is expected to fall below the 7% of GDP target in 2013, making the economy susceptible to external shocks.
• Monetary Policy: The benchmark interest rate has remained unchanged at 8.25% for 11 consecutive months, indicating a stable monetary policy stance.
• Market Sentiment: Investor sentiment remains depressed, leading to weak market momentum and breadth. However, the number of new highs is reasonably high, while the number of new lows is low.
• Technical Indicators: The technical picture is mixed, with some sectors showing positive trends and others indicating weakness. The MSCI Russia index is trading below its 200-day moving average, suggesting potential support.
• Company Analysis: The document includes a detailed analysis of key companies in the RTS Index, covering financial metrics such as earnings revisions, sales revisions, dividend yields, and payout ratios. Several companies are rated as BUY, while others are rated as HOLD or UNDERPERFORM.
• Financial Health: Financial metrics like the Altman Z-score and Piotroski F-score are used to assess the financial strength of companies. The Z-score is generally above 2.60, indicating a safe zone, while the F-score varies, with some companies showing strong financial health.

Main Points

• GDP Growth: Expected to be 2.5% in 2013 and 3.3% in 2014.
• Oil Prices: Spot or near-month contract oil prices have increased due to unrest in the MENA region, leading to a backwardated oil futures market.
• Valuations: The Russian equity market has very low valuations, with a 12-month forward PE of 5.5x.
• Market Trends: The market has struggled to show absolute returns, and the technical picture is mixed.
• Company Performance:
  • Energy Sector: Companies like Gazprom, Rosneft, and Lukoil are showing mixed performance with some experiencing negative returns.
  • Consumer Staples: Magnit and others have shown positive returns, with strong sales growth.
  • Materials Sector: Companies like Norilsk Nickel and PhosAgro have shown mixed results.
  • Telecom Services: Sistema and Mobile TeleSystems have shown positive performance.
• Dividend Yields: The dividend yield is rising, but the sustainability of dividend cover is questioned.
• Investor Flows: Fund flows into the Russian equity market have been weak, and investors are unconvinced by the economic story.
• Financial Indicators: The Altman Z-score indicates a generally safe zone, while the Piotroski F-score varies, showing mixed financial strength.

Key Information

• Economic Indicators:
  • Real GDP growth for 2013 and 2014 is forecasted at 2.5% and 3.3%, respectively.
  • Current account surplus remains stable despite weak commodity prices.
  • Federal budget deficit is forecasted to widen.
• Market Indicators:
  • The 12-month forward PE is 5.5x, below the 5-year average of 6.4x.
  • Market momentum and breadth are weak, as indicated by the cumulative advance decline line.
• Company Analysis:
  • Gazprom OAO: Market cap of $89,615 million, YTD return of -8.8%, and a high dividend yield.
  • Rosneft: Market cap of $74,739 million, YTD return of -13.8%, and a high dividend yield.
  • Magnit: Market cap of $23,029 million, YTD return of 66.7%, and strong sales growth.
  • Norilsk Nickel: Market cap of $21,810 million, YTD return of -23.4%, and mixed financial indicators.
  • Pharmstandard: Market cap of $1,861 million, YTD return of 0.7%, and a low Piotroski F-score.
• Fund Flows:
  • Equity market flows into Russia have been anemic.
  • Investor sentiment is low, with a preference for other EMEA markets.
• Technical Analysis:
  • The MSCI Russia index is trading below its 200-day moving average.
  • The number of new highs is reasonably high, while the number of new lows is small.
• Dividend and Earnings:
  • The forward dividend yield is increasing, but the dividend cover is questionable.
  • Earnings revisions are mixed, with some companies showing improvement in sales forecasts.

Conclusion

Despite its strong fundamentals and low valuations, the Russian equity market faces challenges due to its reliance on oil prices and fiscal sustainability concerns. The market has shown mixed performance, with some sectors outperforming others. While the technical picture is mixed, the potential for support exists. The document recommends maintaining a cautious approach to the Russian market, given its dependency on oil prices and the need for improved fiscal management.