Lukashenko says he may quit as president
Belarus hits EU with tit-for-tat sanctions
Belarusian police introduce colour-coded torture system for detained protesters
Kremlin publicly condemns Belarusian police brutality in hint of growing frustration with Lukashenko
Russian services PMI rises to 48.2, but remains underwater as recovery continues to slow
Russia to start mass vaccinations on December 7
Azerbaijan’s Aliyev calls on Armenia, Russia, Turkey and Iran to assist in creating Nakhchivan land corridor
FPRI BMB Russia: Sberbank releases a three-year transformation strategy to e-commerce concern
Ukraine’s banking sector continues recovery, but profits still lagging last year
Ukraine’s real wages up over 10% in October but have been stagnant in dollar terms for almost a year
FPRI BMB Ukraine: Public has confused opinions on resolving the Donbas conflict
Western Balkans plus Ukraine subsidised coal with over €900mn in 2018-2019
Estonian parcel robot firm Cleveron eyes €30mn state loan
Estonia’s chief auditor says €1bn in state COVID-19 loans issued haphazardly
Economic sentiment in CEE falls in November as recovery momentum splutters
Estonian animation studio Imepilt to hold IPO
Brighter days ahead: The economic bounce back in 2021
Central, Southeast Europe stock markets jump in anticipation of COVID-free future
VISEGRAD BLOG: An easing of trade tensions but still an uncertain situation for export-oriented Central Europe
Hungary's PM risks isolation as Poland mulls dropping EU budget veto
Poland ready to back down from veto of EU budget
Hungary's ruling party in damage control mode after MEP sex scandal bombshell
Poland’s PMI remains stuck just above the improvement line at 50.8 in November
Czech companies dominate this year’s Deloitte Technology Fast 50 CE
Coronacrisis to get worse before it gets better forecasts wiiw
EU diplomats say no chance of Bulgaria removing veto for Skopje to start EU accession talks
IMF says downside risks to Albanian economy are increasing
EU ministers fail to agree on launch of accession talks with Albania and North Macedonia
Western Balkans commit to green agenda and regional common market at Sofia summit
Bosnia’s opposition ousts nationalist parties in major cities
Bosnia’s main ethnic parties fight to hold onto power in local elections
Southeast Europe’s EU members to get biggest boost from next budget and recovery funds
Bulgaria imposes 3-week lockdown to slow down COVID-19 spread
CEE politicians highlight trade and security ties as they congratulate Biden
Breakaway Transnistria fully under Sheriff’s control as Obnovlenie party sweeps board in parliament election
Moldova’s presidential election is over, now the battle for the parliament begins
Moldova’s foreign policy reset
Russian establishment quick to congratulate Moldova's new president-elect
Rising COVID-19 cases put intense pressure on CEE healthcare systems
MEPs urge European Commission to act against Hungarian media financing in North Macedonia and Slovenia
North Macedonia mulls decriminalising cannabis to boost tourism
Retail surpass pre-crisis peak as Romanians shop instead of holiday
Romanian venture capital firm Catalyst launches new €40mn-50mn fund for TMT
Aegon to sell its CEE business to Vienna Insurance for €830mn
The state is back in business
Slovenian PM Jansa stands alongside Hungary and Poland in EU rule of law row
BEYOND THE BOSPORUS: Turkish number crunchers deliver November inflation surprise of 14%
Erdogan needs to go says analyst assessing Turkey’s economic collapse
Ukraine strikes deal with Turkey to produce killer drones instrumental in Karabakh conflict
In Karabakh deal, as many questions as answers
Protesters flood Yerevan demanding Armenia’s “traitor” PM quit over Nagorno-Karabakh surrender
Who emerge as the real winners from the bloody Nagorno-Karabakh conflict?
Below average 2020 wine production destined for volatile and uncertain global market
Iran calls on Saudis to limit $67bn defence spending to Tehran’s $10bn
Iranian prosecutors pledge to pursue Trump for Soleimani killing even after he leaves White House
No reaction from Kazakh elites as bombshell FT report says Nazarbayev’s son in law siphoned millions from pipeline scheme
UK court freezes $5bn in assets connected to fugitive Kazakh banker Ablyazov
Attack of the Debt Tsunami: global debt soars to a new all-time high
Kyrgyzstan's proposed new constitution provokes widespread revulsion
Kyrgyzstan's China debt: Between crowdfunding and austerity
CFC joins RWC in assessing KAZ Minerals buyout offer as under-valuation
China business briefing: Not happy with Kyrgyzstan
Mongolian coal exports to China paralysed as Beijing demands virus testing of truck drivers
Mongolia fears economic damage as country faces up to its first local transmissions of coronavirus
Mongolia in lockdown after suffering first local coronavirus transmissions
Mongolia’s wrestling culture: From the grasslands to the cage
No surprises in Tajikistan as Rahmon retains presidency with 91% of vote
A Tajikistan poised on verge of economic calamity set for vote
Tajikistan revives on-off dispute with Iran
Turkmenistan: The dammed united
Turkmenistan: Everybody yurts, sometimes
Dirty money investigation reviews identified payments worth $1.4bn linked to Turkmenistan
Uzbekistan unveils extensive privatisation programme
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In 1999 Al Breach, the 20-something year old head of research at Goldman Sachs in Moscow, made a legendary call. He persuaded his bosses to mark the entire Russian equity market up to “Buy.”
Many thought him crazy. Russia’s financial system had just collapsed. The government had defaulted on $40bn of GKOs, the state’s main treasury bill that was largely held by foreign investors (and since replaced with the OFZs). Unemployment, inflation and poverty were soaring, while GDP growth had just gone through a 14-point swing from around 7% growth to a 7.5% contraction. And the government had no more than around $5bn in foreign exchange reserves.
But Breach was right. Any investor brave enough to have followed his advice would have made a mint. Renaissance Capital, the doyen of Russia’s equity markets in the 1990s, has just made the same call, marking the majority of Russian equities up to Buy.
The pattern was less obvious in 1999, but since then it has become pretty clear that the Russian equity market goes through regular supercycles of booms and busts.
The RTS peaked in 1997 at over 500, but that autumn the index hit its all-time low of a mere 38.3 on October 6. A year later the index had more than doubled to 88.7. Another year on the index had doubled again to 194.5. The following year the index had done less well and lost some ground to 175.1 on October 6, 2001. But the year after it had almost doubled again from the 2000 level to 349 on October 7, 2002 – a ten-fold gain on its October 6, 1999 low in only four years.
And so on. You get the picture. The RTS continued to climb fairly steadily in the following years until it finally reached its all time peak of 2,487.92 on May 19, 2008, when the market crashed again and by the end of October that year was down to 551.96.
Clearly with these wild swings the game is all about getting your timing right, and investing just after a particularly nasty crisis actually makes a lot of sense.
“The last four 50%+ oil price declines (1997-1998, 2000-2001, 2007-2008 and 2014-2016) were all great entry points for investors into Russian equities,” the Renaissance Capital research team of Daniel Salter, Charles Robertson, Sofya Donets and Vikram Lopez said in a note to clients on April 24.
“Over a quarter of a century of data since the inception of MSCI Russia (at end-1994) shows us that provided oil prices have fallen by 65%+ from their peak, Russian equities have always shown a positive dollar return over the subsequent six months (and have also outperformed MSCI EM over the same six months). We are thus overweight Russian equities on a six-month view,” the Rencap team conclude.
Russia is a cyclical market, not a steady recovery and growth market. Over the long term all the gains investors make in the good years – in non-crisis years the Russian equity market usually returns about 20% or more – tend to get destroyed in crisis years. And the crisis years can be are very bad indeed. Following the August 1998 meltdown the leading dollar-denominated Russia Trading System (RTS) index lost 85%. In March this year the RTS was down just under 50% YTD. But just as an investor can lose their shirt investing in Russian stocks ahead of a crisis, they can equally make very good returns by investing just after one.
Buy on the oil crash, sell on the oil boom
To paraphrase Baron de Rothschild’s famous, “buy on the sound of cannons, sell on the sound of trumpets” investors should buy on the oil crash and sell on the oil boom. This is the fifth time oil prices have fallen by half, says Rencap.
1. 1997-1998 when the 1997 Asian financial crisis morphed into Russia’s 1998 crisis. Brent oil fell by 59% from $21.7 per barrel to $9.0/bl and the MSCI Russia Index declined by 94% from peak to trough (all figures in dollars).
2. 2001, coinciding with the 2001 US recession which followed the bursting of the tech bubble in 2000. Brent oil fell by 56% from $37.7/bl to $16.6/bl and MSCI Russia declined by 52% from peak to trough.
3. 2008-2009 during the global financial crisis. Brent oil fell by 77% from $146/bl to $34.0/bl and MSCI Russia declined by 80% from peak to trough.
4. 2014-2016, which saw OPEC decide not to cut output despite the rise in shale oil production in the US and amidst a growth slowdown in China. Brent oil fell by 77% from $115/bl to $26.4/l and MSCI Russia declined by 57% from peak to trough.
5. 2020- the current coronavirus crisis. Brent oil fell by 75% from $69.0/bl to $17.3/bl and MSCI Russia declined by 51% from peak to trough.
Each of these collapses saw Russian equities lose half their value in dollar terms from peak to trough.
“Each of the four oil price collapses over 1997-2016 has represented a great buying opportunity for Russian equities, which rose by 50-239% over the following six months from the equity market bottom (34-114% from the oil price bottom),” says Rencap.
In the rebound from 2014-2016, the sector winners were financials, telecoms, energy and materials; the relative losers were consumer staples and utilities.
This portfolio is largely a list of investor’s darlings from the last few years and as the major stocks on the market are likely to attract the first round of investment as many have simply become “too cheap to ignore.”
Sberbank has become Russia’s “tourist stock”, the name investors buy before they buy anything else, as in addition to being a very large bank that enjoys many competitive advantages thanks to its state-owned status, it is also a play on both the consumer story and the overall economic recovery.
Rosneft and Norilsk Nickel are the largest oil and metal companies respectively, whereas Novatek is Russia’s biggest independent producer of gas and LNG. Novatek’s share were on a run last year and doubled in value together with those of Lukoil, Russia’s largest privately owned oil company.
Most sectors are represented by the list. Polyus Gold and Polymetal are gold miners, Alrosa is the diamond monopolist, although it just had a terrible year with poor sales in 2019.
The utilities are represented by InerRAO, RusHydro and Unipro; online and telecoms by Mobile TeleSystems (MTS) and Mail.ru Group; retail by Detsky Mir and Magnit; and transport by Globaltrans.
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