Troika puts Russia’s economy in global context
The performance of Russia’s equity market has been dependent on the global situation all year. Now, as Europe and the US prepare to make new significant announcements, Troika Dialog looks at the impact on Russia.
Russia’s equity market outperformed peers as global markets rallied when risk phobia fell, and underperformed when risk aversion rose.
Troika’s chief strategist, Chris Weafer, is convinced specific headlines from Russia (the positive economic and earnings momentum, and the negative politics) have had relatively little impact.
At the start of the summer, the hope was that policymakers would finally stop procrastinating, and take more pragmatic steps to start dealing with slowing economies and the Euro zone risk, he says.
Weafer comments: “Last week’s European Central Bank (ECB) decision is the first of four actions that now need to occur to convince investors that the summer rally in risk assets has a meaningful distance to run. The ECB has, to use the US political phrase, initiated what is hoped will be a sustainable positive momentum – the Big Mo – in markets.”
After the strong gains of the past two sessions, a brief period of profit taking may occur today or in the next few days. But, if the US Federal Reserve does deliver, then markets will again finish the week higher. Asia’s markets traded better on Monday morning on China stimulus hopes, and both copper and Brent also rose, albeit modestly.
Weafer outlines the next three crucial steps:
– Wednesday’s German court decision on whether the country may participate in the ESM. A negative vote would not be a death knell but would make significant progress difficult.
– The Fed decision on additional stimulus on Thursday. Last Friday’s poor US payroll report makes a positive action much more likely, which has led us to slam our Tactical market indicator well into the Bullish segment for this week.
– The release of the next tranche of bailout cash to Greece and some restructuring of the austerity package is more likely a formality if the court decision is positive. This may not come until the EU summit in mid-October, but investors will not wait to be more bullish if the Fed delivers.