Russia equities

Russia’s surprise cut in its key interest rate to 15 per cent from 17 per cent on Friday was primarily a product of political pressure and may do more harm than good to Moscow’s twin aims of restraining inflation while softening the impact of an incipient recession, analysts said.

“The CBR’s (Central Bank of Russia) move will likely have quite a reverse effect on inflation,” said Vladimir Tikhomirov, chief economist at BCS Financial Group, a Russian investment bank. “The market is already increasing pressure on the rouble which, in turn, will transform into higher – rather than lower – inflationary expectations going forward.” Read more

By Vladimir Tikhomirov, BCS Financial Group

Russia’s central bank faces a dilemma at its monetary policy meeting on Friday. It stated when it hiked interest rates to 17 per cent last month – to their highest levels since 2003 – that this increase would be a temporary measure to defend the rouble. However, inflation stubbornly remains high, restricting the bank’s room to manoeuver.

Indeed, recent inflation data suggests that the new interest rate could stay for much longer. According to the official statistical agency, in December Russia’s consumer price index (CPI) jumped by 2.6 per cent month-on-month which is the highest level on record since the period of mid-1990s when inflation was running at unsustainable high double-digit rates. Read more

Russian asset prices have taken a severe battering this year and are now ranked as among the cheapest in the world. The obvious question many are now asking is, “is this a good time to buy” or “is there more pain to come” which might lead to even lower prices and valuations in 2015?

Apart from the cheap valuations, the reason why investors are asking that question now is because, during Russia’s previous two recent crises, in 1998/’99 and 2008/’09, we had similar situations where the reasons to continue avoiding the country were overwhelming but it was, nevertheless, exactly the right time to buy. Read more

A fascinating note has arrived in our inbox from Steven Holden of Copley Fund Research, which tracks the investments of 100 big global EM equity funds with about $285bn of assets under management.

Readers may remember a recent piece based on his monthly report in October, showing that big fund managers were predominantly underweight in China compared with the MSCI Emerging Markets index, and overweight in India. An analysis of data from his November report shows that, on average, managers are in line with the MSCI regarding Russia – but that, individually, they diverge greatly from the index, in ways that suggest contrasting views on the crisis in Ukraine and how to play it as an investor. Read more

Russia’s finances are being squeezed by a contraction in economic growth and faltering oil prices. So what better time for Russia to demand bigger dividends from its powerful state companies?

New rules forcing the likes of Gazprom, Rosneft and Sberbank to share more of their profits with investors will land an extra $8bn in the Russian budget in 2014 and continue to boost state coffers for years to come, according to a report by Markit Equities Research, the financial information services company. Read more

Alisher Usmanov, Megafon’s controlling shareholder, must be delighted with the decision to push ahead with the Russian mobile telephone operator’s initial public offering last November. Megafon shares – after reaching a record £28.68 on Thursday on the back of 2012 financial results – are now trading in London more than 44 per cent higher than at the time of the listing. Read more

Chris Osborne, Head of Sberbank CIB USA, would be the first to admit that Russia has an image problem among American investors.

“Selling Russia can be a challenge,” he told beyondbrics. “For people who are not already investors in Russia, the image of the country is very negative.” Read more

By Ben Aris of bne

Russian President Vladimir Putin has started his second stint of two possible terms as president by launching a sweeping programme of reforms. Changes to the financial system are the most advanced and possibly the most important.

Putin met with senior officials to discus the development of the financial markets on Friday January 25. Two things came out of the meeting: changes to the market regulator, and a renewed privatisation effort. Read more

By Marcus Svedberg of East Capital

It became quite popular last year to question emerging markets in general and the Brics in particular. Analysts started to doubt the sustainability of their economic models following a deceleration in growth rates, even though the source of the problem was primarily to be found in developed economies.

This was perhaps a macro version of the irrational financial “flight to safety” that characterised most of 2011. Read more

The Moscow Exchange is planning to float shares on its own platform in an initial public offering that will fly the flag for Russia’s principal stock trading venue.

By opting for an exclusively domestic listing, the exchange hopes to boost the appeal of Moscow as a financial center and encourage more Russian companies to forgo the attractions of the London Stock Exchange and go public at home. Read more

Russian markets re-opened on Tuesday after the country’s nine-day New Year’s hibernation holiday, and got 2013 off to a good start.

Boosted by an improvement in global sentiment, the Micex index rose 2.7 per cent in its its biggest one-day gain since mid-September. The rouble appreciated 0.3 per cent against the dollar-euro basket. Read more

A tense stock market debut for Megafon and its underwriters finished with the Russian telecoms company’s London-listed global depository receipts closing at $19.60, just below the $20-a-share IPO price. An embarrassment but not a disaster.

As the chart (below the jump) shows, the GDRs threatened to drop through the $19.50 level that the underwriting banks seemed to be defending – and on one occasion touched $19.45. Unless global market conditions stage an unexpected recovery, the stock looks likely to remain under pressure. Read more

Megafon, the Russian mobile operator, seems set to get its IPO away, with the help of this month’s modest recovery in financial market sentiment.

Speaking on the last day of the sale, people close to the offer say they have received enough orders to fill the offering. But it’s at the lower end of the $20-$25 price range, suggesting that investors have been fairly cautious about putting in their orders. Trading in Moscow and London is due to start on Wednesday. Read more

Russia on Friday implemented much-debated orders for state-controlled companies to boost dividends in a move that could perk up interest in the country’s undervalued stock market.

State companies’ dividends flow into state coffers, but minority shareholders will benefit – and non-state companies are likely to follow the Kremlin’s lead. Read more

The Russian stock market marked the news of the success of Sberbank’s $5bn offering with a 1.9 per cent drop in the dollar-denominated RTS index, the third daily decline in a row. The big bank fell too, losing around 1 per cent by late afternoon Moscow time.

But that was only to be expected given the size of the $5.1bn offering and volatile world markets. In the long run the issue looks positive for Sberbank, positive for the market and positive for the Russian economy. Read more

By Ben Aris of business new europe

Russia’s leading private healthcare company MD Medical Group is hoping to cash in on growing enthusiasm for Russian equity with an October IPO to raise more than $150m, which it will use to continue its rapid expansion.

MDMG plans a London listing in October in two parts. A $150m primary issue of 30 per cent of the company as global depositary receipts will be offered. There will also be a secondary issue of existing shares at the same time, the size of which has yet to be decided, but could be “significant,” according to a source close to the deal. Read more

Moscow has finally got away a big chunk of its much-discussed and oft-delayed privatisation programme, with the sale on Monday of a 7.58 per cent stake in Sberbank, the country’s largest bank.

Sberbank plunged 2.6 per cent as the investment bankers swung into action and later recovered to trade 1.9 per cent down as investors digested the $5.4bn share offering. Read more

By Ben Aris of business new europe

A window of optimism (albeit a small one) is opening in the global equity markets for Russian companies contemplating an initial or secondary share offering (IPO/SPO), and companies are rushing out plans to list.

Sberbank’s SPO of a 7.6 per cent stake looks increasingly likely to happen and could take place as soon as next week. And a raft of other companies are close to offering investors shares. Read more

With the new Putin administration settling down, the Russian economy chuggling along nicely by global standards, and global market sentiment improving (slightly), Russian companies are renewing their efforts to tempt investors with equity.

First off the blocks is MegaFon, Russia’s second-largest mobile phone operator, with what could be the world’s third biggest international intial public offering this year after Facebook in May and Japan Airlines, which is due to raise $8bn on Monday.

But Facebook’s dismal post-IPO stock decline casts a long shadow, as does the very spotty performance of Russia’s own international offerings, including Nomos Bank, which is very much in the news with a controversial sale that leaves minority shareholders facing lossesRead more

Who owns the Russian equity market and how does ownership affect company performance? A new research note from Troika Dialog sheds some light.

The short answer to the first question is, the state, which is the single largest player with 30 per cent of equity ownership. This compares with a free float of 27 per cent owned by institutional and private investors. The answer to the second question is a bit more complex. Read more