Global concerns weigh on local optimism of Russian analysts

Russian equity market analysts are counselling investors against taking any drastic action on their holdings, even after shares there rose 8.3% this year, as the market still exhibits resilience in the face of the global financial crisis.

But the volatility on global markets is leading the analysts to advise investors to adopt some risk-minimising strategies.

Russian shares are in seemingly good health. The MICEX-RTS index was up last week, the MSCI Russia index is 8.31% higher so far this year, and oil prices – which can exert a heavy influence over the direction of the local market – have increased by 4% in barely two weeks.

Yet the global crisis is making the analysts cautious.

Some interviewed recently by Investfunds.ru, Russia’s fund data source, suggest mixed-asset products as the best way to maximise returns, while minimising risks.

Sergei Shalgin, analyst at Russia’s DOHOD Financial Group, says: “Mixed-asset funds that allow risk minimisation are the most attractive investment option at the moment, given the questionable prospects for the global economy.”

Maxim Popov, analyst at Promsvyaz Asset Management, agrees, and adds that active management is preferable to passive approaches.

He says active portfolios can adapt to markets’ changing dynamics, thus making them a good instrument to deal with market volatility.

However, analysts’ opinions differ on the nature of trading strategies managers in charge of these funds should take.

Nord Capital’s Roman Tkachuk suggests the best strategy in the current environment is to buy and hold, as the Russian market “still offers a great deal of growth potential” in his opinion.

“The government’s privatisation plans should also facilitate growth as it tries to sell off assets at an attractive price. But it would still be wise to remain selective in the choice of stocks.”

DOHOD’s Shalgin, on the other hand, considers now to be a good time to secure profits, by selectively selling off some holdings.

“Of course it’s not a good idea to sell off all your holdings, but we think it’s time to get rid of some long positions.”

He favours Magnit, Dixy and Rostelecom, which have “all achieved good profits”, but where he expects corrections in their stock prices.

“So it doesn’t make sense to hold these shares,” he says. “It would be best to invest the cash generated in some of the blue chips, such as Gazprom and Norilsk Nickel, as well as into supporting this autumn’s oil futures, as Brent prices are close to their peak at $115 per barrel.”

The oil and gas sector remains a favourite among the analyst panel, but Shalgin also sees potential in the utilities sector.

This is unexpected, as most managers remain negative on the sector, which has been heavily affected by disputes with the government about tariffs.
Yet Shalgin believes the industry has a good chance of recovery in the long term.

Last month, the two best performing open-ended funds on the Russian market happened to be utility funds. TKB BNP Paribas Investment Partners’ Russian utilities fund made 10%, followed by Troika Dialog’s utility fund, which is up 8.69%.

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