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2012 Equities Outlook


In last year’s edition, we discussed our outlook based on a combination of the volatile external backdrop and overall supportive combination of domestic drivers. This remains the state of play 12 months on.

The difference is that the Russian stock market entered 2011 in an upbeat mood, while at the start of 2012, the sentiment is exactly the opposite. This, we contend, leaves much headroom for positive surprises.

As Russia’s next administration takes office this spring, the policy agenda – macroeconomic, structural and political – for the next political cycle is to become clearer. The developments of the recent months are promising, from the ongoing emphasis on responsible macro policies via Russia’s WTO accession to the impressively vocal push to address the deficiencies of public sector governance (i.e. tackle corruption). Stock market-specific themes, such as dividends and the enhancements to market infrastructure, are equally potent drivers for a re-rating.

Our house view for 2012 envisages 2% global GDP growth, Europe in recession (but policymakers preventing an outright Lehman moment), the US drifting closer towards fiscal tightening, more extreme money printing in most of DM, Chinese growth bottoming around mid-year, and Brent averaging USD 100/bbl.

The key global risks are very much political: coordination failure in Europe, complicated internal politics (and the elections calendar) and geopolitics. RTS Index 2,200 target transferred to end-2012. This is a bold 60% 12-month upside, but not unprecedented for Russian stocks. It implies 8.3x forward 12M P/E, in line with Russia’s historical average.

Going into 2012, we overweight Oils, Utilities and Precious Metals at the expense of underweights in Banks, Fertilisers and Food Retailers. Our preferred large cap names are LUKOIL, Polymetal, MTS and FSK, as well as Globaltrans, Mostotrest and IBS in the second tier universe.  

Alexey Zabotkin, Andrey Amelin, Sergey Galkin
VTB Capital analysts

WTO, Europe, oil

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