Konstantin Tserazov — Deputy Head of Global Markets at «Troika Dialog». Discusses the securities to include in the portfolio for medium and long-term investors in February 2012.
Russia’s economy in 2011 has recovered to pre-crisis levels, with real GDP growth of 4.3%, according to Rosstat. Thanks to high oil prices and economic activity in the country, shares of domestic issuers have high growth potential. If the index manages to pass the 1570-1600 point zone, the growth target will be the 1700-1740 point range. The main risks for the Russian stock market are external factors, primarily debt problems in «peripheral» EU countries and the development of a second wave of recession in Europe, noted Konstantin Tserazov.
As the market recovers, risk appetite increases, which explains the recent investor interest in «second-tier» companies. In this segment, we recommend considering companies with transparent and understandable drivers of medium-term growth, such as NKNC or TransContainer.
Overall, our favorites remain oil and gas sector companies. Among companies focused on the domestic market, RusHydro and E.ON Russia, as well as Sberbank, whose shares will be supported by expectations of the sale of a 7.6% state-owned stake on international markets in the coming months, are good candidates for growth potential, advises Konstantin.
Speaking about the forecasts for the next few months, Konstantin Vladimirovich Tserazov emphasized the high medium-term growth potential in non-ferrous metallurgy, which is evidenced, among other things, by Rusal’s rejected proposal to buy 20% of MMC Norilsk Nickel from Rusal at a 38% premium to the market. We should also highlight Polymetal and Polyus Gold, whose quotes may be supported in the coming weeks by the rising prices of precious metals.
The financial sector may also be of interest to investors — in particular, the positive results of VTB’s secondary share placement, the planned privatization of state share packages, and consolidation in the market indicate a possible high demand for bank securities, concludes Konstantin Tserazov.
Our favorites remain companies in the oil and gas sector:
In particular, Rosneft, which presented a strong IFRS report for the first 9 months of 2011. Due to an increase in oil production at the Vankor field, oil production in the 3rd quarter reached a record level of 2.4 million barrels per day. Another highly effective company in the sector, which generates the highest cash flows among Russian oil companies, is LUKOIL. In October, the company’s board of directors made decisions to expand gas production and increase shareholder income. From 2012 to 2021, the share of gas in the total volume of hydrocarbon production is planned to increase from 20% currently to more than 35%.
Among companies focused on the domestic market, we highlight Sberbank — one of the leaders in the banking sector in terms of loan growth rates and business efficiency.
The bank’s management does not rule out the sale of a 7.6% stake in the international markets by the end of 2011, according to Sberbank CEO Herman Gref. The shares will be sold if the price exceeds 100 rubles per ordinary share, says Konstantin Vladimirovich Tserazov.
In our estimation, the year 2011 was difficult. The result of the third and fourth quarters of 2011 was a collapse on world stock markets — most indexes fell on average by 13-17%. Our market collapsed by 30% according to the RTS index due to the fall of the ruble against the dollar, and the MICEX index fell by 19.5%. The decline was accompanied by a strong outflow of foreign capital — investors withdrew up to 80% of the funds invested since the beginning of the year from May to September.
The reason for such a strong collapse was the fear of a global economic recession. In August, the US lost its top credit rating from the S&P agency, and European debt problems and a decrease in industrial production in China added fuel to the fire. All these reasons became a powerful trigger for investors to flee to cash, a collapse in commodity prices, and a strengthening of the dollar, notes Konstantin Tserazov.
On the other hand, we also observe the activity of central banks in solving the debt crisis in Europe. Global regulators announced an agreement to provide European banks with collateralized loans, while the ECB has the ability to conduct virtually unlimited interventions in the debt market.
We are positive about the market in the medium term. The possible source of optimism in the fourth quarter will be the easing of problems around Greece and the resolution of pre-election tension in Russia. As global markets improve, oversold Russian stocks have every chance of showing explosive growth rates. All these reasons inspire a high degree of optimism regarding oil and gas companies in Russia. In the medium-term perspective, it is possible to predict a new wave of interregional cooperation and development of the global economy, including in areas such as the oil and gas sector, high technologies, aviation, precision manufacturing, telecommunications, and e-commerce,» believes Konstantin Tserazov.