In the first nine months of 2012, the RTS Index oscillated across a wide range centered on 1,500, and in recent weeks it has been gravitating to that mark. The reacceleration of global GDP growth in 2013, the improved visibility on the Russian government’s macro and structural policies, progress on streamlining the financial markets infrastructure, and the shift towards more generous dividend policies mean that a breakout from the trading range is now more likely. Our house view remains that 2012 will prove to be the trough year of the current global growth cycle. We see Russia as a high beta outperforming EM and DM counterparts during the expansion phase.
The launch of the Central Depository, most likely in November, coupled with the Euroclearability of OFZs, add up to a tightening of the local yield curve and a reduction in the cost of capital. Both shall have measurable impacts on stock valuations.
We see the RTS Index retesting 2012 highs around 1,750 in 4Q12, and see it at 2,000 at end-2013 with more evidence of improved dividend policies and governance at state-owned companies being the driver.