RTS (Moscow) Market Overviews

Provided with extremely negative inflow of negative external information, RTS index plummeted by 6,69% this week, with -4,52% collapse only on Wednesday, therefore, flashing back to value of 2159,10 which it had in mid-November. The only appropriate explanation of such a significant decrease can be found in the figures that came out this week in the USA, and signaled that the world’s leading country might be facing a recession. Major American banks – Citigroup and Merrill Lynch announced that in last quarter of year 2007 each of them faced about 10 billions of net losses as well as it is worth mentioning that their capitalization on stock exchange dropped almost by half. It is expected that figures of other leading banks would not be much better. Another factor, which stands for recession is that US FRS published some very important macroeconomic indicators, which in the long-term outlook can not be considered as optimistic at all. In general, fears of recession in last few months led to withdrawal of funds from most of the world’s stock exchanges, even in developing countries, and investing emancipated capital in less risky instruments, such as, for example, government bonds. Russian stock market had been resisting to these fears, while providing positive corporate and politic news, but this week it could not withstand and showed that it is also highly dependant of the processes happening in the world. The turnover was rather high with 274 mln EUR during the week. From a very few gainers JSC Polyus Gold (PLZL) was the top one this week with +6,6% and closing price 35.97 EUR. Top loser was JSC Uralkali (URKA) with -9,77% and closing price 4,55 EUR, such a fall, in addition to common dispositions at the market, can be also explained by needed technical correction in this stock. The volatility was extremely high, especially in the last 3 days of the week, and, in general, Russian stocks were speeding downwards.

 

Oil-and-gas company Rosneft (ROSN) has presented results of activity for 3 quarter 2007 and 9 months 2007. By virtue of that the company only in 2007 has carried out final consolidation of actives, it is considered as the most expedient comparison of results of accounting quarter to results 2nd quarter 2007 though also it gives insufficiently objective picture. The exceeded growth by 10 % of the price for the oil has been substantially leveled by corresponding growth of the export duty (by 26.3 % in dollars). The proceeds of the company according to 3rd quarter’s (2007) results have made 9.41 billion EUR (+ 27.4 %), thus it has surpassed our expectations by 8.66 billion EUR due to greater (than it was predicted) proceeds from realization of mineral oil and services of oil refinement. The volume of oil recovery has grown up by 199.08 million barrels (by 11.9 % for 2nd quarter 2007). Among the positive moments it is necessary to underline growth of sales of mineral oil (52 %) and decrease in sales of crude oil (-15 %). Advancing growth of operational charges (81 %) is negative, that finally has led to decrease of operational profitability from 25 % up to 23 %. As a whole the results of 3rd quarter 2007 are considered as positive. However, in correspondence with the whole market decrease ROSN shares price has dropped off by – 7.95 %. Price for the last deal was 5.79 EUR, minimum price during the previous week was 5.73 EUR, maximum – 6.36 EUR. It is also important to mention that the target price is expected to be 5.34 EUR per share, hence, it is recommended “to sell”.

 

Despite the overwhelming bearish dispositions in the market during this week’s downfall and unfavorable news from the foreign exchanges there were companies whose stock price increased. One of the white crows amongst the ubiquitously falling share prices was JSC Polyus Gold (PLZL). Being one of the leaders of the week, company’s shares gained 6.6% during the previous five trading days with the Friday’s closing price of EUR 35.97. The backbone for the increase was mainly of the out-of company nature. One of the reasons was tightly connected with the produce of the company – gold. During Monday’s trading session price of this precious metal rose to it’s historical maximum, EUR 624.26 for a troy ounce. The price leap was followed by analysts’ predictions that gold price can rise above EUR 683 during the first half of the year. Another reason for the price increase was the ongoing concerns about the situation with American economy. The world’s largest bank Citigroup suffered 6.72 bill EUR loss during the fourth quarter of the previous year; it is thought that Federal Reserve rate will be lowered again. Investors withdraw their funds from the oil and gas sector companies and banks and due to the possible instability and Polyus Golds shares seem to be a less risky investment in this situation. Another fact concerning the company was the demand of the holding company Interros to convene an out of turn shareholders’ meeting in order to reelect the board of the company. The aim of this action is to transform the system of corporative management so that it could correspond to the status of a big international company. To sum up, we believe that shares of the company have potential to increase in value in the short-run.

 

One of the top losers of the week was JSC Lukoil (LKOH). Even though, in general,  the press releases of the company were quite positive, its stock value decreased by 8.71% (closing price EUR 52.28). There were several announcements about the performance of Lukoil but they did not affect much the results of the bargains on Russian stock market. 

 

So, first of all, on 14.01 the board of Lukoil revealed its plans about the increase of hydrocarbon production by 5 percent to 7 percent during the current year. The basic growth, the official went on, will be ensured by the launch of Yuzhno-Khylchuyusskoe field in Timano-Pechora province.

Apart from this news, on that day the company also announced that it had acquired the only fuel-supply complex in the airport “Pulkovo” in St. Petersburg.  Such an acquisition will, most probably, result in the rise of the prices on fuel, which will subsequently bring higher profits to Lukoil.

 

On 16.01 Lukoil published news about the signing of the agreement on strategic cooperation with JSC Severstal-Auto. According to this agreement, Lukoil will supply the new partner with its production and take direct part in researches and elaborations of new technologies conducted by Severstal-Auto. And the last to mention, on 17.01 Lukoil announced its decision to acquire JSC TGK-8, one of the leading companies in generation sphere in Russia. In our opinion, the news above are positive enough to make the stock value rise and, in case there are no harsh obstacles, Lukoil will gain good positions during the upcoming week.

 

Basically, it is hard to make any predictions for what will happen next week. It depends to which factors investors will pay attention to. If they continue to reflect their decisions basing on what is happening in the rest of the world, there is not much positive to expect of Russian stock performance in next week. But if they start to take into consideration also the internal information, also the one which was completely ignored this week, when some companies published quite impressive and optimistic financial statements of the year 2007, then recovery and rise of stocks will be quite logical. Another point which stands for short-term increase can be seen in needed technical rebound of shares after such a considerable drop.