The equity market continues to be driven by external events and news flow. Russia, like many other EMs that are deemed to be most at risk from slowing global growth, is considered a fringe investment theme and will remain so until the threats overhanging the US and EU are reduced.
This week, the main focus will again be external, with the next phase of the budget debate in the US and the US Federal Reserve’s monthly FOMC meeting likely to provide the major talking points, and have the greatest influence on investor attitude toward risk assets. Before that, however, the Cyprus deposit protection proposal has hit markets hard in Moscow and across Europe this morning as investors worry that this issue may escalate into a bigger political and economic crisis to destabilize the Eurozone.
Our base-case is that the volatility in 1Q13, such as we se today, should give way to calmer markets in the spring and early summer, when we expect to see the risk premium in Russian equity valuations decline. We recommend adding to portfolio positions during days like today and into any periods of weakness generally and again highlight our top stock picks in the table in the attached published note
The weekly fund flow data from EPFR Global shows that investors, who had added over $30 bln to EM equity funds in January and February, have become much more cautious since the start of March. Last week, they withdrew money for only the second time since the first week of September.
The domestic talking point this week will likely be provided by Russia’s February macro report, which is expected to again show a weaker economic performance than seen over the same period last year.
To access the full report, click here Download Russia In Context - March 18 '13