Research Notes
Tactics for September 2009 New recovery signs needed
| 03.09.09 |
The economy will continue to recover slowly. We expect a significant slowdown of economic contraction in 2H 2009, compared to 1H 2009, and reiterate our forecast for a full-year GDP contraction of 7%. Revival of economic activity will be hampered by weak consumer demand and a shortage of debt financing.
We see no grounds for a second wave of crisis in autumn... We do not share the opinion that a second wave of crisis is unavoidable, as we do not see the potential catalysts for such an outcome. Even though the financial sector remains vulnerable, we do not foresee any repetition of September 2008 events.
...and raise our 2009 RTS target... After the revision of our oil price forecast and taking into account the fact that country risks have decreased in recent months, we have raised our baseline 2009 RTS index target by 15% to 1,150.
...but recommend that investors remain cautious. The Russian stock market is currently valued at 12.6 times P/E 2010. Investor’s expectations of global market trend normalization and global economic recovery have already been fully priced in, and anything that could cast doubts on these expectations could adversely affect the highly volatile Russian stock market.
Oil & gas still look like a good defensive strategy. Should the rally in oil prices continue, oil & gas shares will be the first to react to the commodity factor. If negative trends dominate the market, oil & gas shares, distinguished by relatively low multiples and low beta coefficients, will be an effective defensive play. Our favorites are Gazprom and Lukoil.
Telecoms will be in the spotlight. We expect that September will shed light on details of the Svyazinvest reform, which should rouse investor interest in fixed-line telecoms shares. We regard Rostelecom prefs as the best way to participate in the industry restructuring. The preferred shares of the cheapest MRKs also provide interesting opportunities, especially Dalsvyaz and Volgatelecom.
RusHydro accident opportunities. In our view, the accident at the Sayano-Shushenskaya hydropower plant has triggered an overly emotional reaction on the market. We consider the current price levels for RusHydro to be appealing for fundamental investors. We highlight Kuzbassrazrezugol, Power Machines and Trest Gidromontazh as the main potential beneficiaries of the accident.
Bond market. We continue to give preference to first-tier local bonds with a maturity of under two years, and single out HydroOGK and FGC-4 in this regard. We also recommend Gazprom-8 bonds to more conservative investors.
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