FINANCIAL ANALYSIS by Chris Weafer
- The global markets rally looked close to expiring on Monday but yesterday the US Treasury Secretary breathed life back into it to live a little longer. The strong gain in the US markets (S&P rose 2.1% to 850.1), plus the rise in the price of oil, will help the Russian markets to regain yesterday’s loss at the opening this morning. The banks, especially Sberbank, should lead the recovery after US banks led the way higher in their market. Oil company shares should also be modestly better with the better finish for crude on Nymex and the price gain in Asia this morning.
- Asian equities are trading around 0.5% higher this morning, led by shares in banks and the technology sector. The former as a conta gion from the US banks move higher and the latter after a good report from a chip producer. Japan’s March exports fell 45.6% according to a government report. That is at least better than the 49.4% slump in February. A flimsy reason for optimism but a marginal positive nevertheless.
Banks in good shape. The US Treasury Secretary’s comment that most US banks have enough capital to survive provided just enough optimism to counter the actual evidence of still declining economic activity and declining demand forecasts. It shows that a majority of investors are still desperately clinging onto the hope that this recession may soon be at an end; that the problems in the banking sector may be over; and that the recent move in markets may not be just a bear market rally. However, the evidence to the contrary is compelling and relentless. The IMF provided the latest sober voice with a report issued yesterday that said the total cost of toxic debts may exceed $4 trillion by end next year and that covering this amount will prevent banks from being able to resume lending operations this year. The IMF is looking for a deeper-for-longer recession. Despite the US Secretary’s optimism, markets are approaching the tail-end of the bear market rally and while confidence in another, and stronger, market run in the autumn is realistic, May and June are more likely to be tough months for all markets.
Russia is high beta. The Russian markets are, as expected, providing a high beta play on the trend in global markets and in oil. During the recent markets rally, while oil also edged up to over $50 p/bbl, the RTS rose almost 70% while the US S&P 500 gained about 30%. The same effect can be expected in a markets reversal, i.e. with the Russian stocks falling further and faster. That was evident over the past two days. Today the Moscow bourses should rebound from yesterday’s loss with the banks likely to lead as the sector did in the US last night. Citigroup’s share price rose almost 10%. Sberbank is likely to be the main beneficiary, as investors remain wary of VTB ahead of tomorrow’s results. The oil stocks should also rally a little after the gain in the price of crude on Nymex yesterday. Where oil closes today will depend on the weekly US inventory report. The consensus view is for a gain of 2.5 million barrels. A higher number will likely hit the Russian oil stocks, and the ruble, on Thursday morning.
MICEX rallied 2.0% at the close. The local bourses followed the global markets trend lower yesterday with the “beta” effect again provided with another morning drop in the price of oil. But, after the US Treasury Secretary’s comments helped improve the mood in the US equity markets, and in the oil market, prices staged a late rebound. MICEX, because of its longer overlap with the US, rebounded almost 2% from the session low to end the day off 0.6%. The RTS did not have the opportunity for a bounce and ended its session off 3.1%. Both indices have now lost 6.0% and 7.1% over the past two days. The oil and metal sector stocks led the way as, globally, investors have turned more wary of the previous optimism that the recession is near an end. The bank shares, the main winners in the rally of the past two months, fell with profit taking and fears over the possible fall-out from the US banks stress-test review.
RusHydro fell with capex worries. Sberbank was off 4.4% on the RTS but only 0.9% on MICEX at its close. VTB ended down 3.1% as investors remain wary of its results statement, due tomorrow. LUKoil closed down 0.1% on MICEX, up from the 3.5% closing loss on the RTS as the crude oil price also improve with the US Secretary’s comments. Norilsk Nickel lost 3.4% as part of the negative stance against industrial metals. RusHydro fell after its CEO said that the government is insisting that the Boguchansk electricity plant must be built. With RusAl’s well documented debt problems there is a major question mark over who will shoulder the main burden of the project. Amongst the 2nd tiers, the TGK’s generally had a positive session, e.g. TGK 5 rose 8.0%, while the regional telecoms were mainly down. Volga and Center Telecom closed down 14% and 7% respectively. That was a reaction to the valuation report on Svyazinvest.
Good gains in ADRs. In London, GDR prices picked up a little into the close with the better mood in global markets. Trade volume was again quite light and most price moves were not much more than playing either side of the bid-offer spread. GlobalTrans, the rail container company, was one of the few exceptions, rising 13.3%. It had fallen too much in recent months. LSR Group followed Monday’s big fall with another 11.9% drop on funding and activity worries. AFI Group closed down 10.3% and PIK Group lost 9.1% as investors stayed away from the real-estate casino. In the US, Wimm_Bill-Dann led the way with a gain of 7.4%, while Mechel also attracted buyers with a gain of 6.0%. The mobile stocks rose 3.0% each in light trade.
IMF warns of bank problems. The IMF instilled a dose of reality, or tried to, into markets yesterday wits its report that suggested the total value of losses in distressed debt and securitized assets may reach $4.1 trillion by the end of next year. The IMF said it believes that banks will have to cover about 60% of that total, or $2.5 trillion. Without further stimulus from governments, the organisation believes that the scale of the losses will mean that banks will have to continue curtailing lending activity and that will further worsen the global economic slump.
Russia is high beta. The Russian markets are, as expected, providing a high beta play on the trend in global markets and in oil. During the recent markets rally, while oil also edged up to over $50 p/bbl, the RTS rose almost 70% while the US S&P 500 gained about 30%. The same effect can be expected in a markets reversal, i.e. with the Russian stocks falling further and faster. That was evident over the past two days. Today the Moscow bourses should rebound from yesterday’s loss with the banks likely to lead as the sector did in the US last night. Citigroup’s share price rose almost 10%. Sberbank is likely to be the main beneficiary, as investors remain wary of VTB ahead of tomorrow’s results. The oil stocks should also rally a little after the gain in the price of crude on Nymex yesterday. Where oil closes today will depend on the weekly US inventory report. The consensus view is for a gain of 2.5 million barrels. A higher number will likely hit the Russian oil stocks, and the ruble, on Thursday morning.
MICEX rallied 2.0% at the close. The local bourses followed the global markets trend lower yesterday with the “beta” effect again provided with another morning drop in the price of oil. But, after the US Treasury Secretary’s comments helped improve the mood in the US equity markets, and in the oil market, prices staged a late rebound. MICEX, because of its longer overlap with the US, rebounded almost 2% from the session low to end the day off 0.6%. The RTS did not have the opportunity for a bounce and ended its session off 3.1%. Both indices have now lost 6.0% and 7.1% over the past two days. The oil and metal sector stocks led the way as, globally, investors have turned more wary of the previous optimism that the recession is near an end. The bank shares, the main winners in the rally of the past two months, fell with profit taking and fears over the possible fall-out from the US banks stress-test review.
RusHydro fell with capex worries. Sberbank was off 4.4% on the RTS but only 0.9% on MICEX at its close. VTB ended down 3.1% as investors remain wary of its results statement, due tomorrow. LUKoil closed down 0.1% on MICEX, up from the 3.5% closing loss on the RTS as the crude oil price also improve with the US Secretary’s comments. Norilsk Nickel lost 3.4% as part of the negative stance against industrial metals. RusHydro fell after its CEO said that the government is insisting that the Boguchansk electricity plant must be built. With RusAl’s well documented debt problems there is a major question mark over who will shoulder the main burden of the project. Amongst the 2nd tiers, the TGK’s generally had a positive session, e.g. TGK 5 rose 8.0%, while the regional telecoms were mainly down. Volga and Center Telecom closed down 14% and 7% respectively. That was a reaction to the valuation report on Svyazinvest.
Good gains in ADRs. In London, GDR prices picked up a little into the close with the better mood in global markets. Trade volume was again quite light and most price moves were not much more than playing either side of the bid-offer spread. GlobalTrans, the rail container company, was one of the few exceptions, rising 13.3%. It had fallen too much in recent months. LSR Group followed Monday’s big fall with another 11.9% drop on funding and activity worries. AFI Group closed down 10.3% and PIK Group lost 9.1% as investors stayed away from the real-estate casino. In the US, Wimm_Bill-Dann led the way with a gain of 7.4%, while Mechel also attracted buyers with a gain of 6.0%. The mobile stocks rose 3.0% each in light trade.
IMF warns of bank problems. The IMF instilled a dose of reality, or tried to, into markets yesterday wits its report that suggested the total value of losses in distressed debt and securitized assets may reach $4.1 trillion by the end of next year. The IMF said it believes that banks will have to cover about 60% of that total, or $2.5 trillion. Without further stimulus from governments, the organisation believes that the scale of the losses will mean that banks will have to continue curtailing lending activity and that will further worsen the global economic slump.
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