Even as Oil is holding up in the middle of the trading range observed since mid-February (when it crossed USD 120/bbl for the first time since last May), the Russian stock market is clearly increasingly weighting the probability of it breaking that range in the coming weeks. Our view is that such break is most likely going to be to the downside. Yesterday’s statement of intent from Saudi Arabia to ensure that the global petroleum market remains well-supplied adds to the notion that the demand/supply balance is likely to be swinging to over-supply as we speak, after two years of undersupply.
With this risk to the key external variable in mind, we nevertheless continue to anticipate an improvement in the perception of Russia’s country risk in the coming weeks. It has yet to be seen whether this improvement is sufficiently large and timely to offset the headwinds from the slide in oil prices. However, the vector is healthy. The law liberalising the registration of political parties was passed at the second reading yesterday, and is now going to come into force immediately upon adoption (likely to be completed shortly), and not from 1 January 2013 as the original draft suggested. Also, Prime Minister Vladimir Putin’s press service reported yesterday that he had had a phone call with US President Barack Obama, and that the two leaders had agreed to meet shortly after the inauguration on 7 May (most likely at the G8 summit in late May). This hints at the possibility of a more soothing rhetoric on Russia-US relations in the coming months.
Back to yesterday’s market action in Russian stocks. After the third consecutive day of market decline, the major Russian equity benchmarks have slid 4% since last Thursday: the RTS index closed below the 1,700 level (1,693) and a thin 1% above the previous local bottom of 1,677. Blue chips were sold off more intensively, with gas names Gazprom (-3.0%, 1.3x 1M ADTV) and NOVATEK (-6.1%, 1.3x) underperforming and Sberbank (-1.5%, 1.0x) enjoying a better bid. Among other liquid names there were noticeable price movements registered in Norilsk Nickel (-4.2%, 1.3x), Uralkali (+2.1%, 2.0x – see the supportive news on the 2Q12 contracts with China below), NLMK (+1.1%, 1.0x), Magnit (-5.6%, 1.0x) and MRSK Holding (-6.3%, 1.3x). Elsewhere, two second-tier stocks reported their FY11 numbers yesterday: MHP (-2.8%, 0.9x) and Bank of Georgia (unch), although there was no evident reaction from investors. Overall trading volumes in Russian stocks scored USD 4.7bn—some 20% above average.
Among corporate events scheduled for today we note ENRC’s 2011 results; globally, the US February existing home sales deserves attention (and commands added significance after the softish housing starts print yesterday).