Research Notes
Strategy for 3Q2010: Correction adds appeal to Russian equities
| 02.07.10 |
The debt crisis in European countries and the potential slowdown of the Chinese economy creating additional risks for the global economic recovery, which may continue to put the pressure on financial markets in upcoming months. However, given the strong actions undertaken by global state authorities to limit the negative impact of the debt crisis in Europe on the real economy, we remain optimistic with a year-end perspective.
We expect economic recovery to continue. The deterioration of the investment climate in Europe, the potential slowdown of the Chinese economy and the expected government expenditures cuts create additional risks for the global economic recovery. However, we expect the above-indicated negative factors to be offset by low interest rates, and efforts by state authorities to undo the negative implications of the debt crisis in Europe on the real economy, which is to shore up positive trends and support the global recovery.
Correction restores appeal in Russian equities... Following a 17% correction from its peak levels in April, the average P/E 2010 of the RTS index has decreased to 9x, and its discount to the Brazil market has widened to 35%. Unlike 2Q, when appealing investment opportunities on the Russian market were largely seen in the mid-small cap universe, current prices for an array of blue chips look fundamentally attractive.
...but global risks will continue to put pressure on market in forthcoming months. Investor optimism about global economic recovery acceleration cooled in 2Q. Sovereign debt crises in a number of European nations, in combination with credit tightening in China, have considerably increased risks for global economic recovery. According to our estimates, the above-indicated risks will continue to exert pressure on financial markets in the forthcoming months.
RTS 2010 year-end target - 1850. Despite expectations of lingering uncertainty in upcoming months, we continue to see a good fundamental upside potential in the Russian market. The market should gain support from the Fed and ECB low interest rates and the developing positive trends in the national economy, which become increasingly more pronounced as the months roll by. Our RTS 2010 year-end target is 1,850 points.
Banking sector: bet on economic recovery . As positive trends gain force in the national economy, we turn investor attention to the banking shares that are currently valued with a large discount to foreign peers. The renewed growth of loan portfolios and the softer impact of the crisis on banking business should result in the improvement of financials from quarter to quarter. Our favorites are: Sberbank, VTB and Bank Saint Petersburg.
* Short overviews of equity research reports and sector reports are posted on the website http://www.finamrus.com with a 1-day delay after their full versions are emailed to the company’s clients. To get overviews on the day of their release, please contact your manager at Finam to sign up for full versions of research reports.