Global backdrop steadier. 2013 is to see global growth momentum picking up from the cyclical trough of 2012. There are many reasons to expect the already traditional risk-off in the second quarter, but the underlying trend in EM equities is to beat the 2011-12 out-turn. Russian equities, as a perceived high-beta exposure to global growth, can outperform, in our view.
Russia’s policy cycle to turn soon, growth pick-up later in 2013. In 1H13, Russia’s growth is to remain stagnant, with GDP rising 2.2% for FY13 under our baseline USD 95/bbl 2013F Brent; USD 110/bbl Brent would yield a better, but still unspectacular, 2.7% out-turn. The RUB outlook still suggests depreciation in 2013, to 33.70 in the baseline case (and to 32.45 under the USD 110/bbl assumption).
Structural themes show (piecemeal) progress. The authorities scored tangible points in 2012, with the WTO accession, Central Depository, work on the financial mega-regulator, the dividends of state-owned enterprises, an accelerating privatisation pipeline and a number of high-profile corruption investigations. Should 2013 bring more evidence of a determined vector on these and other well-known matters, confidence in Russia’s investment case would be on the mend.
Index target. Our mid-year objective for the RTS Index is 1,750, whereas the reacceleration of the Russian economy in 2H13 and the increasing confidence on structural topics (as well as results) mean that 2,000 remains a realistic end-2013 target.
Sector and stock preferences. We favour exporters over domestics, at least for 1H13, as the global growth story looks better than Russia’s own for the next 2-3 quarters