Market Roundup

The Russian stock retreated on Friday as it was unable to resist the global negative trend triggered by JPMorgan’s unexpected huge-scale trading loss; the MICEX index sank 1.2%, while the RTS lost over 2%. O&G majors closed the day in a mixed bag as Gazprom underwent a sharp 4.5% drop, while Rosneft (2.5%) was among the few names that was able to finish confidently in the green. Banking stocks declined but nevertheless managed to outperform the benchmarks; Sberbank (-0.8%), VTB (-0.5%). Steel producers retreated in line with the market on average; MMK (-1.4%), Severstal (-0.7%), NLMK (-3.1%). Base metals manufacturers closed the day marginally in the green; Norilsk Nickel (0.1%), Rusal (0.3%). Electricity grids became the obvious outsiders of the day as the market was disappointed with the government’s intention to potentially merge FGC (-8.3%) and MRSK Holding (-10%) The US stock market opened deeply in the red on Friday, but managed to erase some losses during the day; the S&P500 index declined 0.3%, led by Commodity producers and Banks. Commodities were little changed throughout Friday; Brent crude continued to trade around the USD 112 per bbl level, gold and base metals fluctuated.Considering the very vulnerable macro sentiment around the globe and increased political uncertainty in Europe, we expect the Russian stock market to open marginally in the red today, however the absence of external guides (trading floors around the globe are closed for the weekend) could help to limit the damage. Among the corporate news, we highlight talks over potential FGC – MRSK Holding combination, which are likely to lead to the increased volatility of both names going forward, and Mechel’s intentions to reduce the debt load through the asset sale, which is itself positive but the effect of the news is likely to be depreciated by challenging industry conditions.

The Russian stock market appreciated on Thursday as valuations became very attractive; the MICEX index jumped 1.5%, led by banks and crude producers. Among major O&G names, only Gazprom (0.3%) underperformed the benchmarks, while the others recorded a very healthy share prices increase; Lukoil (2.7%), Rosneft (2.6%), Novatek (4.9%). Banking substantially underperformed the market, with Sberbank and VTB both adding-on 2.7%. Ferrous metals producers were mixed; Mechel (5.5%), Severstal (3.5%), NLMK (-0.7%). Base metals manufacturers swung between gains and losses; Norilsk Nickel appreciated 1.4% while Rusal continued to head south and sank 1.2%.The US stock market recorded a modestly positive performance on Thursday, with the S&P500 index adding 0.3%, led by low-Beta sectors including Telecoms and Utilities. Asian stocks retreated after JPMorgan reported an unexpected trading loss, with the bad news being partly off-set by moderating inflation in China. Commodities headed lower; Brent crude fell below the USD 112 per bbl level, gold sank further, and major base metals also retreated.Given the fairly nervous reaction of global financial markets to JPMorgan’s trading loss and an obvious lack of good news from commodity markets, we expect Russian equities to head south straight from the opening bell today. The mid-term market dynamics are expected to be excessively volatile, considering the ongoing political uncertainty in Europe.

The Russian stock market headed south on Tuesday under pressure from declining commodity prices and an increased political uncertainty in Europe; the MICEX index inched down by 0.1% while the RTS declined 0.2%. O&G majors retreated, and have adjusted to new crude price levels; Gazprom (-0.4%), Lukoil (-1.2%), Rosneft (-3.0%). Banking stocks swung between gains and losses; Sberbank (0.9%), VTB (-1.0%). Ferrous metals producers also were in a mixed bag, as NLMK (5.7%) produced a very impressive jump, while Severstal (-1.8%) and MMK (-0.5%) retreated. Within the base metals universe, Norilsk Nickel inched up 0.3% while Rusal sank 1.9%. Among the names which managed to outperform the market, we highlight good quality domestic demand focused companies: Magnit (2.3%), Sollers (2.8%), E.On Russia (2.4%). The US stock market headed south on Wednesday threatened by increased political uncertainty in Europe; the S&P500 index shaved off 0.7%, financial shares suffering the most. Asian equities swung between gains and losses as encouraging job market data from Australia was offset by slowing exports and imports growth in China. Commodity markets stayed relatively calm throughout the last 24 hours; Brent crude continued trading at around USD 112-113 per bbl level, gold remained below the USD 1600 per oz mark, only base metals produced some sort of recovery.Considering the increased political risks in Europe, anti-government rallies in Moscow and the predominantly weak shape of commodity markets, we expect the Russian stock market to head south right from the opening bell. Among the potential underperformers, we highlight high-Beta sectors including Metals and Banks. Mechel reports FY11 IFRS results today and we clearly see room for both a positive and a negative surprise from the numbers; Evraz is looking for a 10% buy-back approval from shareholders, which could lend some support to the stock price.

The Russian stock market suffered a sharp sell-off on Friday, triggered by falling commodity prices and disappointing job market data coming out of the US and Europe. MICEX and RTS indexes lost 3.6% each, returning to the levels last seen in late 2011 – early 2012. O&G majors retreated generally in line with the benchmarks pressured by falling crude prices; Gazprom (-3.8%), Lukoil (-2.9%), Rosneft (-3.9%). Within the banking universe, Sberbank (-2.1%) performed considerably better then the market, while VTB (-4.4%) was unable to resist the overall negative trend downwards. Ferrous metals producers suffered the biggest sell-off in quite a while; MMK (-4.3%), NLMK (-6.6%), Severstal (-6.7%), Mechel (-6.0%), Raspadskaya (-7.5%). Among base metals manufacturers Norilsk Nickel (-4.6%) underwent a sharp decline, while Rusal was little changed as the company prepares to report 1Q12 financials next week. Russian carmaker Avtovaz lead the decline for the second straight day, losing another 9% after Renault-Nissan effectively delayed the acquisition.

The US underwent a sharp decline pressured by disappointing labor market data pointing to a potential softening of the economic environment. The S&P500 index retreated 1.6%, with Technology and Commodity sectors feeling the most pain. Commodities swung between gains and losses on Friday; Brent crude prices dropped to USD 113 per bbl, base metals posted a moderate decline while gold even gained.

We think that the massive sell-off on Friday was an overreaction to predominantly poor US and EU macro data, especially considering that any evidence of economic weakness brings us closer to new monetary stimulus. So, given the fact that Russia is trading alone today, with all major trading floors closed for a weekend, we see a reasonable chance for some sort of rebound.

Russian equity benchmarks closed another trading day in the red, having been disappointed by new signs of global economic weakness and uncertainty over future growth; the MICEX index inched down by 0.2% while the RTS lost almost 1%. O&G majors finished the day in a mixed bag; Gazprom (1.1%), Lukoil (-0.1%), Rosneft (-1.2%). Banking shares declined generally in-line with the benchmark; Sberbank (-0.6%), VTB (-0.4%). Ferrous metals producers predominantly underperformed the benchmarks with Severstal (1.1%) being the sole exception; MMK (-3.1%), NLMK (-1.3%), Mechel (-3.9%), Evraz (-1.6%). Base metals manufacturers showed fairly surprising resistance to the overall downwards trend; Norilsk Nickel inched down only 0.1% while Rusal added a solid 1.7%. Russian leading carmaker Avtovaz (-7%) was the key outsider of the day after Renault-Nissan effectively delayed the acquisition. The US stock market headed south discouraged by weaker than expected expansion of service industries and the absence of decisive debt-crisis fighting actions from the ECB. The S&P500 index shaved off 0.8%, with O&G and Financial sectors leading the decline for the second straight day. Asian equities were trading predominantly to the downside today with additional pressure coming from Australia, where the central bank downgraded its growth outlook. Commodities underwent a meaningful correction; Brent crude declined to USD 116 per bbl, a level last seen in early February, base metals and gold inched down. Given that the global economy continues to show more and more visible signs of weakness, which negatively affect global commodity and equity markets, we see few chances for Russian stock market to open in the green today. Among the possible outperformers of the day, we point out Polyus Gold International which BoD approved dividend policy yesterday. Our mid-term view remains unchanged as we believe that Russian equities are too cheap to fall significantly below the current levels, but an obvious lack of catalysts makes a considerable rebound also fairly unlikely.