Troika suggests investors stay defensive in August

Troika Dialog is betting on defensive stocks and sectors in August, fearing what the month might bring.

Although traditionally a quiet holiday month, historically for Russia it has been the time for unexpected events, notably the default in 1998, major terrorist attacks in 2004, the commencement of the war between Russia and Georgia in 2008 and a major drought in 2010, which destroyed a large part of Russia’s annual grain harvest and led to an almost year-long ban on exports.


With this background, it’s no wonder that investors are wary of taking on risks. Last week Russian mutual funds already experienced outflows, although the RTS Index has remained relatively stable so far. Global data provider EPFR said fund outflows between June 11 and 18 amounted to $1.8m.

In the past, the month has seen the RTS index move more than 10% up or down, affecting primarily the high beta names and banks. The best performers in such market conditions are defensive and low beta stocks, says Troika. It points to construction, gold producers, media and IT, real estate, retailers and transport.

The report paraphrases former US Defense Secretary Donald Rumsfeld: “We already have several ‘known knowns’ and ‘known unknowns’ this August. We need to worry about the ‘unknown unknowns’.”

The ‘known’ events include Russia formally joining the World Trade Organisation on August 22, creating a central depository in the country and the developments in the Eurozone. Other events affecting the country are in the ‘unknown’ category. So, as Troika advises, “hit the beach, but keep the mobile phone on.” 

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