Russian Markets Research May 21-27, 2007
Contents:
DOW’s advance exceeded expectations of all analysts.
The Index rushed up and posted a new lifetime high at 13.624 last week.
Russian stock market dropped considerably last week.
RTS, Futures on RTS, MICEX and MICEX10 crashed down by 4% on average.
Released economic data again showed that Russian economy continues to grow.
Oil prices climbed by 2% on average last week following previous week’s rise by almost 7%.
Investing revenues from petrodollars into “blue chips†of the Russian stock market.
The president of the Russian Federation instructed the government to study the opportunity of investing revenues from petrodollars into “blue chips†of the Russian stock market. The state commission which was engaged in the research of this matter declared that it is possible.
Economists skeptically look at investing the part of Russia’s Stabilization Fund into Russian stock market. Many claimed that such investments are possible only to support the Russian stock market but not to optimize Fund’s investment policy. According to their comments, “a piece of the pie†must be invested exclusively to foreign assets.
Russian Economic Update
Russia’s foreign trade went up 16.3% to $114.401bln in January-March 2007
According to Rosstat, Russia’s foreign trade went up 16.3% to $114.401bln in January-March 2007. Foreign trade amounted to $43.6bln in March. Russia’s exports amounted to $26.2bln in March 2007, including $22.3bln with non-CIS countries and $3.9bln with CIS countries. Imports stood at $15.1bln, including imports from non-CIS countries amounted to $12.8bln and $2.3bn from CIS countries.
According to the verified data, Russia’s GDP grew 7.7% in Q1 2007
Russian Prime Minister, Mikhail Fradkov, declared that according to the revised data, Russia’s GDP grew 7.7% in Q1 2007. Preliminary results were slightly different. On 30 April 2007 Finance Minister Alexei Kudrin reported a GDP growth of 8.4% in Q1 2007. Minister of Economy German Gref said Russia could achieve higher GDP growth than envisaged by the economic forecast for 2008-2010. This will be possible if corporate investment activity goes up and oil prices beat the forecasts. But there are similar risks in the opposite direction as well. “Under favorable conditions we will be able to achieve a GDP growth of 6.8%, but no more than that,†he said.
Russia’s domestic debt stepped up by 21.6% in 2006
According to the Central Bank annual report, Russia’s domestic debt stepped up by USD7.33bln, or by 21.6% in 2006 and amounted to USD63.83bln as of January 1, 2007.
The real disposable income of population grew by 9,2% in April 2007 in Russia, compared with April 2006
According to Rosstat, the real disposable income of population grew by 9,2% in April compared with April 2006. Real disposable cash income increased 11.5 percent in January-April 2007 compared with the same period in 2006. Average accrued wages rose 28.4% in April 2007 to RUR12,510 (approx. USD484.13) compared to April 2006, and which is 0,5% higher than in March 2007.
The volume of Russia’s Investments abroad grew by 16,6% in Q1 2007 and amounted to $11,776bln compared to the same period a year earlier
The volume of Russian Investments abroad grew by 16,6% in Q1 2007 and amounted to $11,776bln compared to the same period a year earlier. In Q1 2007 $4,719bln was invested to the US (for the same period the US invested $364mln to Russia, which is 13 times less), $3,019bln to Austria, $1,095bln to Germany, $493mln to Great Britain, $283mln to Cyprus, $114mln to Ukraine, $66mln to Bahamas, $27mln to the Netherlands.
Russian Markets Weekly May 28, 2007
Russia’s oil output grew by 3,7% to 161,4mln tones in January-April 2007
According to the Finance Ministry, Russia’s production of oil with gas condensate climbed 3.7% to 161.4mln tonnes in January-April 2007 compared to the same period a year earlier.
The share of foreign capital in Russian banking system increased from 15,9% to 18,3% in Q1 2007, excluding VTB and CBR issues
According to the CBR, the share of foreign capital in Russian banking system increased from 15,9% to 18,3% in Q1 2007, excluding VTB and CBR issues. Russian banks still have some advantages such as high ROA (approx. 24%), large branch networks, and good knowledge of Russian clients. Results of raising capital by the CBR and VTB can have “the multiplier effect†for the whole Russian banking system, which can increase the demand for the capital of other Russian banks.
The Finance Ministry plans to increase the Reserve Fund to 10% of GDP
According to the Russian Finance Ministry, the Reserve Fund of Russia will amount to $130bln by the beginning of 2008, $142bln by the beginning of 2009, and $154bln by the beginning of 2010. The Finance Ministry plans to increase the Reserve Fund to 10% of GDP. The Fund of Future Generations will amount to $18bln by the beginning of 2008.
Russian President signed a law on national development bank
Russian President Vladimir Putin signed a law on the national development bank. The new bank will operate under Vnesheconombank brand name. The president also signed a law on the operation of Vnesheconombank without the Central Bank’s license.
Russia posted Stabilization Fund size for 2006
According to the CBR, Russia’s Stabilization Fund increased by $42.94bln in 2006 and amounted to $90.79bln as of January 1, 2007. The balance of the federal budget accounts in the Bank of Russia grew by 1.7 times to $128.31bln in 2006. Consolidated budget revenue stood at $411.06bln, or 39.7% of Russia’s GDP. Budget spending was $323.98bln, or 31.3% of GDP. Preliminary budget surplus stood at $87.07bln, or 8.4% of GDP.
Russia will not to use Stabilization Fund money in 2007
The Russian Finance Ministry does not believe that Russia will have to use Stabilization Fund resources in 2007 except to finance such projects as a national development bank and nanotechnology corporation.
Russia’s electricity output declined by 0,7% in January-April 2007
According to the Russian Industry and Energy Ministry, Russia’s electricity output slid 0.7% to 357.07bln kilowatt-hours in January-April 2007. Coal output went down 0.2% to 105.12mln tonnes in January-April 2007.
The volume of illegal supply of meat to Russia amounted to 250k tones per year
The volume of illegal supply of meat to Russia amounted to 250k tones per year, which is a noticeable volume that influences the situation on the market. Most of the illegal meat supply comes from China.
Direct foreign investments in Russia will amount to $30bln in 2007 compared to $26.2bln a year earlier
According to Russian Finance Minister, Alexei Kudrin, Direct foreign investments (DFI) in Russia will amount to $30bln in 2007 compared to $26.2bln a year earlier. According to the Ministry’s forecast, direct investment in Russia will increase to $44lbn by 2010.
The volume of pension savings of Russian citizens in non-state pension funds exceeded 19,8bln rubles as of April 1, 2007
The volume of pension savings of Russian citizens in non-state pension funds exceeded 19,8bln rubles as of April 1, 2007, doubled for the year. Thus NPF outperformed private asset managing companies that accumulated 9,4bln rubles by the same date. The amount of NPF working with pension savings increased from 72 to 91. Almost 65% of all money is accumulated in top 5 NPFs.
Two thirds of wealthy Moscovites don’t save, spending all they earn
The research conducted by the consulting group MarketUp and the advertising agency SAUCE Strategy (Sorek group), two thirds of wealthy Moscovites don’t save, spending all they earn. The survey was carried out in Moscow, targeting people with per capita incomes of above $1,500. Of those who prefer to save, 83% said they keep their money in bank, and only 3% said they purchased stakes in mutual funds.
The average performance of the Federal Budget in Q1 2007 amounted to only 60%
According to Alexei Kudrin, the average performance of the Federal Budget in Q1 2007 amounted to only 60%. Thus, The Ministry of External Affairs performed 92%, Agriculture Ministry 81%, Federal Healthcare Ministry 40%, and Federal Construction Agency 23%. The main problem announced was that money does not come to recipients in time. The minister highlighted poor planning of some ministries and departments.
Changes will be made to the Federal Budget for 2007 due to receipts from Yukos assets sales. 2
Changes would be made to the Federal Budget for 2007 due to receipts from Yukos assets sales. Russia’s Federal Budget revenue from the sale of the Russian oil company YUKOS’s assets may amount to $17.37bln.
Government considers the creation of a housing and utilities corporation
According to the Finance Ministry, the Russian government will draft a bill on a state corporation in change of housing and utilities infrastructure reforms by the end of May. The government will make a substantial contribution of $9.27bln into the corporation, which is to be reinvested in highly liquid assets, possibly foreign assets or the Central Bank’s deposits. The corporation will start using the funds in 2008 and continue for a period of four to five years. Furthermore, $190mln will be spent in 2007 on the rehabilitation of worn out housing and $190mln more on moving families from hazardous housing. The contribution and the rehabilitation money are to be taken from the revenue from the sale of YUKOS’s assets.
Russian Markets Weekly May 28, 2007
Russian companies welcome IPOs
According to Russian Finance Minister, Alexei Kudrin, more than 70 Russian companies are planning to make IPOs in the next two years. In 2006 Russia became the world’s fifth leading country in terms of IPO. Fifteen companies floated their stocks on both Russian and foreign markets, raising a total of $16.7 billion. On the whole, Russia’s stock market is growing rapidly. Over the past seven years it has been showing the fastest growth among large emerging markets. Capitalization of the Russian stock market doubled in 2005, and it increased 2.4 times last year, to $1.322 trillion. In terms of stock market capitalization Russia is No. 13 in the world, ahead of South Korea, Brazil, India, Saudi Arabia and Mexico.
Gazprom and Belarus ink gas transit supplementary protocol
Gazprom and Belarus have signed a supplementary protocol on the creation of a joint gas transporting organization, as well as on natural gas supplies and its transit through the territory of the republic.
Russia and Norway will cooperate in the development of Arctic shelf
Russia and Norway will cooperate in the development of Arctic shelf for oil production there. Gazprom and Norway’s Statoil and Hydro will be engaged in this project.
Russia and Austria boosted trade cooperation
Russia’s trade with Austria has reached $5bln. Investment cooperation has become more efficient over the past several years. Putin added that Russia’s investments in Austria were nearing $1bln and Austria’s investment stood at around $2bln. Moreover, Austria would have a positive impact on Russia’s relations with the EU.
Russia facing depopulation
According to the Federal State Statistics Service, Russia’s resident population dropped 0.08% or 118,000 people in January-March 2007 reaching 142.1mln people as of April 1, 2007. In the same period in 2006, the country’s population decreased by 0.14% or 200,800 people. Depopulation was due to natural loss, which has become lower.
Moscow court to hear damages case against Bank of New York
The Arbitration Court of Moscow has registered a lawsuit submitted by the Russian Federal Customs Service claiming $22.5bln in damages from the Russian representative office of the Bank of New York.
Payments for mobile phone roaming inside the EU will decrease sharply, in some cases by 70%
The European Parliament has approved with the majority of voices the law providing sharp reduction of payments for mobile phone roaming inside of the European Union. In some cases prices can decrease by 70% from current levels. The highest reductions will occur in Ireland and Cyprus.
OPEC does not plan to increase the extraction of oil
OPEC does not plan to increase the extraction of oil being sure that there is no shortage of supply on the market. Oil prices rise due to geopolitical risks in the Near East and Africa. OPEC does not also want to increase the supply to cover losses of oil in Nigeria.
USA fears the appearance of any international energy unions that can influence energy prices
There is a perspective of a creation of new gas union, similar to OPEC, which will have a common standpoint on tariffs and quotas. The Congress of the US said that such union will be of no power that they will not recognize such union and will pursue countries participating in such unions. Thus the US showed its weakness in front of development of world’s markets and new infrastructures.
CIS leaders continue discussions on the creation of a single electricity market
CIS leaders continue discussions on the creation of a single electricity market and developing of a single approach to oil and gas transit tariffs.
Russia will continue to create favorable conditions for foreign investors and welcomes new investment flows regardless of size
In spite of increasing inflationary pressure due to increase of foreign capital inflow into Russia. Russia’s First Deputy PM, Sergey Ivanov, says that Russia will continue to create favorable conditions for foreign investors and welcomes new investment flows regardless of size. He added that the cabinet cooperated with investors on the principle of “foreign technologies in exchange for a share of the Russian market.
Sources: The Central Bank of Russia, Reuters, Cbonds, Finance Ministry
Russian Money Market
Last week O/N rate lay in the band of 2,80–3,50%, for one week rubles could be found at 3,25-4,50%, and for one month at 3,45-4,40%. There is a slight increase in all mentioned rates in spite of an increase of liquidity on the market compared to previous week.
Liquidity again increased considerably on the money market last week. Balances on C/A fell on Monday by more than 50bln rubles, fell also from Tuesday to Thursday slightly, but increased on Friday by almost 180bln rubles, and closed the week at 583,5bln rubles. Bank deposits with the CBR increased by almost 100bln rubles on Monday, stayed at high levels till Friday and closed the week at 1187,50bln rubles.
The total flow of balance on C/A and deposit accounts with CBR increased by 0,66trln rubles last week compared to previous week. The average total liquidity balance per day increased to 1630bln rubles compared to 1497bln rubles in previous week. The CBR still expects considerable inflow of foreign capital into Russia. 4
GOLD AND FOREIGN CURRENCY RESERVES:
The CBR reported that Russia’s gold and foreign currency reserves reached $394,3bln as of May 18, 2007, stepping up by $8bln or 2,07% from their previous level. Reserves have been climbing for TWELVE weeks straight, up $83,20bln or 26,74% within this period, pushed by big amount of dollars the CBR has been purchasing on the domestic currency market and depreciation of USD on the international currency exchange. The Economy Ministry’s forecast (rise by): $90-95bln in 2007, $48.3-71.3bln in 2008, $23.6-51.5bln in 2009, and $14.4-25.5bln in 2010. However, since January 1, 2007, the reserves have already expanded by $91,3bln or 30,13%.
News that Brazil will soon get the first investment grade from one of the leading international rating agencies continues to influence Brazil market. Thus, the yield of Brazil40 increased by almost 2% last week.
Yield of US Treasuries for 10, 5, and 2 years increased again last week by average 1,55%. Russia30 finally showed an increase in yield by 1,07% after it stayed flat for some considerable time showing no interest to world markets’ changes. Yields of European benchmarks increased by average 1,25% last week.
Russian Stock Market
MARKET PERFORMANCE:
RTS fell considerably last week by almost 3,5%. The Index closed the week at 1794,76.
Almost all market sectors dropped together with RTS last week. Oil&Gas, Telecom, Metal&Mining, and Retail dropped by 3,04%, 4,12%, 4,11%, and 1,29% respectively. Only Industrial sector gained 0,37%.
Last week futures on RTS tagged the index and dropped as well. JUN future closed the week at 1788,10 (-4,70%), SEP at 1804,25 (-4,19%).
MICEX and MICEX COMP indices closed the week at 3101,33 (declined by 4,87%) and 1581,51 (declined by 3,90%) respectively. Last week oil prices grew considerably. 9
Brent and Urals rised by 2,16% and 1,65% respectively last week.
FINANCIALS:
AVTOVAZ (net profit amounted to USD24.95mln in Q1 2007), TMK, Russia’s largest pipe maker, (net profit soared 81% to $460mln in 2006 against $254.2mln a year earlier), IRKUT, aircraft corporation, (net profit dropped 49% to $43.188mln in 2006 compared to a year earlier), Svyazinvest (net profit climbed 8.8% to USD756mln in 2006 compared to a year earlier), VimpelCom (net profit surged 84.6% to $277.3mlm in Q1 2007), Magnit, the Russian hard discounter chain, (net profit surged 25.7% to $16.6mln in Q1 2007 compared to the same period a year earlier), Russian Railways (net profit surged 2.6 times to USD1.02bln in 2006).
ISSUES, ACQUISITIONS & INTENTIONS:
Mechel, a Russian mining and metals company, acquired a controlling stake in the Kuznetsk Basin energy sales company Kuzbassenergosbyt in an auction. The 49-percent stake was bought for USD44mln from RAO UES. As Mechel already owned 1.2% of Kuzbassenergosbyt shares, its stake in the energy seller has increased to 50.2%. Fitch declared about intension to consider downgrade of Norilsky Nickel rating because NN increased its bid for Canadian LionOre to 25,7 Canadian dollars per shares, which is 10% more than current Xstrata bid. Still there is a positive sign in this acquisition in terms of influence on the company’s business. The price of company’s shares reacted to this news with sharp fall. Mosenergo completed SPO having placed 11.5bln shares at USD0.2 per share, 11,37bln shares from which was bought by Gazprom. Severstal is buying from Arcelor-Mittal a 25% stake in their Cherepovets-based joint-stock company Severgal. The joint company Severgal is engaged in manufacturing products for Russia and the CIS’s automotive market. The stake in Polymetal, Russia’s top silver mining company, controlled by Nafta Moskva (Cyprus) Limited dropped from 100 to 73.48% as a result of Polymetal’s IPO. Deutsche Bank Trust Company Americas became the nominal holder of the 20.3% stake in Polymetal. The remaining 6.22% are held by minority shareholders. Evraz Group will buy back Yuzhkuzbassugol shares held by individuals. Yuzhkuzbassugol, an Evraz Group subsidiary and owner of the mine, at which a methane explosion killed 38 people last week. RAO UES’s Board of Directors of approved the proposed additional share issue worth some $450mln of Power Machines. Russian Railways seeks a blocking stake of 25 percent and one share in a railway engineering company Transmashholding.
Source: Reuters.
US Stock market, Oil Prices, World’s Indices
DOW:
DOW’s advance exceeded expectations of all analysts. DOW declined by 0,36% last week. DOW started climbing up again from the very beginning of the week and showed a new high on Monday at 13.586, which it was able to break on Wednesday when it posted 13.609. After fall by 100 points the same day, DOW rushed up and posted a new lifetime high at 13.624. DOW closed the week at 13.505.
US ECONOMIC DATA PUBLISHED:
Durable goods orders excluding transportation April 1,5% vs. 1,5% March.
Durable goods orders April 0,6% vs. 5,0% March.
Jobless claims (week to 19.05) +18k.
Durable goods orders excluding defense April 0,6% vs. 4,5% March.
New home sales April 981k vs. 844k March.
Existing home sales April 5,99mln vs. 6,15mln March.
HIGHLIGHTS FROM LAST WEEK’S SPEECHES:
ECB Liebscher: ECB will do what is needed to assure price stability.
GERMANY ECOMIN: Euro impact on Germany weaker than other EU. Euro rise has dampened Germany competitiveness.
EU ALMUNIA: Euro keeps inflation historically low, supports GDP/jobs. EMU’s economic prospects are looking bright.
ECB, Weber: Monetary policy is not yet where it needs to be, with Eurozone growth headed above potential and inflation risks on the rise. When inflation risks materialize, interest rates must climb.
UK BOE: Output price inflation edging up.
BOE BESLEY: Energy prices, rather than the housing market, are likely to be the key to future inflation movements
GERMANY FinMin: Germany could balance Federal budget by 2010.
Organization for Economic Cooperation and Development (OECD): BOE should stay vigilant, given inflationary expectations rise. UK inflation spike could fuel higher wage settlements. Sees UK inflation falling back towards target. UK inflation seen at 2.4% in 2007, 2.0% in 2008. UK GDP growth seen at 2.7% in 2007, 2.5% in 2008.
OIL PRICES:
Qatari oil minister Al-Attiyah: Oil influenced by geo-politics not supply shortage. OPEC is more concerned about supply than price.
OPEC President: Market well supplied, “in fact it is oversuppliedâ€. High prices due to US refining problems.
US EIA’s: World energy consumption should double in the next two decades. Non-OPEC energy demand is seen up +95% in 2004-30. High prices may dampen demand by 2015. 11
EIA: Weekly oil inventories in the US rose 2mln.barrels to 344.2mln barrels last week.
IRAN: IAEA report confirming that Iran has failed to suspend nuclear activity by UN deadline.
It is necessary to remember that OPEC reduced supplies to 2-year lows, which puts additional pressure on oil prices. Conditions still don’t exist for a dialogue between the USA and IRAN on development of Iran’s nuclear program. Brent and Urals rised by 2,16% and 1,65% respectively last week.
WORLD INDICES: Last week world’s main indices showed mixed results, but most of them declined. Best winners were DAX (+1,73%) and Japanese Topix (+1,17%) and Nikkey225 (+0,47%).Losers of the week were FTSE100 (-1,06%), CAC40 (-0,72%). DOW finally declined last week by 0,36% giving some respite after previous long large advance.
This Week’s Agenda
May 28
USA: Memorial Day. All Markets Closed.
May 29
Bank of Canada Announcement
USA: Consumer Confidence May
ISSUES: Svobodniy Sokol to sell RUB 1,2bio of domestic bonds with a 4-years maturity in the middle of the 2-year.
ISSUES: SPK to sell RUB 1bio of domestic bonds with a 3-years maturity in the middle of the 2-year.
ISSUES: Permenergo to sell RUB 1bio of domestic bonds with a 5-years maturity at the end of the 3-year.
ISSUES: Atomstroyexport-Finance to sell RUB 1,5bio of domestic bonds with a 4-years maturity at the end of the 2-year.
ISSUES: AvtoVAZ to sell RUB 5bio of domestic bonds with a 7-years maturity at the end of the 2-year.
May 30
USA: MBA Purchase Applications
USA: ICSC-UBS Store Sales
USA: ADP Employment Report
USA: Redbook
USA: FOMC Minutes
ISSUES: Metallservice-Finance to sell RUB 1,5bio of domestic bonds with a 5-years maturity at the end of the 1-year.
ISSUES: Housing Finance Bank to sell RUB 1,35bio of domestic bonds with a 1-year maturity.
ISSUES:DeltaCredit Bank to sell RUB 2bio of domestic bonds with a 3-years maturity.
May 31
USA: Jobless Claims 05/26
USA: NAPM-Chicago May (Chicago PMI)
USA: Construction Spending April
USA: Help Wanted Index April
USA: EIA Petroleum Status Report (May 9)
USA: Farm Prices
USA: Money Supply
USA: GDP-Prel. Q1
Russia: Gold and forex reserves USD
Russia: Gold and forex reserves USD, WoW, May 25
Russia: Money supply M2 MoM% April
June 01
USA: Nonfarm payrolls May
USA: Unemployment rate May
USA: Hourly earnings May
USA: Average workweek May
USA: Personal Income April
USA: Personal Spending April
USA: Core PCE Inflation April
USA: ISM Mfg Index May
USA: Michigan Sentiment Revised May
USA: Pending Home Sales Index
USA: Motor Vehicle Sales May
USA: Consumer Sentiment
USA: EIA Natural Gas Report (May 9)
RUSSIA: Russian Stabilization fund May
RUSSIA: Money supply Narrow Def.RUB, May 26
RUSSIA: Money supply Narrow Def.RUB, WoW, May 26
ISSUES: Stroytransgaz to sell RUB 5 bio of domestic bonds with a 5-years maturity.
Sources: The Central Bank of Russia, Reuters, Cbonds, Ministry of Finance
RTS
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