The drop in the closing hours on the back of the disturbing US labour market data bought the RTS Index back to the close of 30 March, thus fully reversing the gains at the start of the week on the seemingly decent global PMI readings (which, in our view, were mixed at best). Last week also saw stress in the peripheral Eurozone bond markets resurfacing (Spain 10Y at 5.75%, Italy at 5.45%) and an insufficiently dovish stance on further monetary stimulus from the Fed and the ECB. As Russia-specific factors remain subdued, and as investors hold their breath ahead of the formation of the new administration in May, the Russian stock market remains very much at the mercy of external factors. That said, the one area where tangible developments are possible (and even likely, in our view) before Inauguration Day is the government’s decision on the dividend policy of the state-owned companies. The issue could be brought fo the full government to consider any time now; and Friday’s announcement by Alrosa, approving a 25% payout, is further evidence that the generous approach which has been advertised for some time might finally be institutionalised.
As for details of the price action on Friday, the retreat was quite broad-based, led primarily by Energy and Banks, with SurgutNG (-3.0%, 0.3x of 1M average daily volume) and Gazprom (-2.5%, 0.3x) staying at the front line. MinFin and Gazprom are expected to reach agreement on the gas MET rate this week, which could negatively impact the natgas monopoly’s EBITDA (but we believe that a higher tax makes the government a more material stakeholder in Gazprom and, hence, creates new incentives to improve governance at the company; see story inside). In Banks, Sberbank (-2.1%, 0.5x) published reassuring 1Q12 RAS numbers, but failed to buck the trend. Among the outperformers, we note Transneft pref. (-0.4%, 0.3x), which generated some comments about reduced capex and dividends on Friday. Sentiment towards Bashneft (+0.2%, 0.1x) likely
improved after the latest comment from Sistema’s core shareholder Vladimir Evtushenkov confirming that there would not be material negative issues with the Trebs and Titov licence. Overall market activity was very low, with Good Friday in the West: daily turnover in Russian stocks scored some USD 1bn (0.3x 1M ADTV).
This morning our energy team has cut the 12-month Target Price for Alliance Oil Company 19% to USD 15.50 to reflect the downgraded production guidance for Kolvinskoye greenfield (see Alliance: Reasonable Market Reaction). The stock’s 25% drop in the last month, however, amply reflects the magnitude of the downgrade. Moreover, even if Kolvinskoye production is reduced all the way to zero, the intrinsic value of Alliance Oil is well above the current share price. Hence, Buy is reiterated.
As we go to print, the Asian stock indices are uniformly down (from 0.2% for China to 1.3% for Korea) following the US Friday data and pick-up in China March CPI inflation to 3.6%. The S&P500 futures is also some 1% in the red having abandoned the 1,400 mark (it is at 1,375 as we type). Oil this morning is at USD 122/bbl, EUR at 1.306, 10Y UST 2.07% almost back to early March levels.
Otherwise, on the Russian corporate agenda Gazprom Neft’s BoD is to recommend FY11 dividends today. Later this week, Tatneft, Uralkali and Globaltrans are publishing their FY11 IFRS results, while X5 Retail Group and Polymetal are to report 1Q12 trading updates. Sberbank and NCSP have their record dates. In addition, the Indian High Court is to examine the appellation from the national government concerning the court decision to withdraw licences from Sistema’s SSTL on 13 April. Elsewhere, the corporate earnings season in the developed world is kicking in.
On the policy front, Prime Minister Vladimir Putin is to present the yearly report to the State Duma (11 April). 15 April is the deadline for submitting suggestions for the main areas of activity for the ‘open government’ (President Medvedev’s project to form agenda for the incoming administration) to the President as well as for MinFin to have prepared a draft law setting out the budget policy, including amendments to the Budget Law as concerns new fiscal rules.