In our interview, former Senior Vice President of Otkritie Bank Konstantin Tserazov shared the most important market insights for the period from October 9th to October 16th.
Despite the nervousness prevailing in the markets, domestic indices are showing a positive trend. The Moscow Exchange index has completed its third consecutive week of growth, gaining 1.5% from October 9th to October 13th, and the dollar-based RTS index has risen by 4.7%.
Russian indices received support throughout the week from high oil prices, which exceeded $89 per barrel of Brent crude in light of escalating geopolitical risks, as indicated by Konstantin Tserazov. Investors are concerned that the conflict in the Middle East may become protracted, potentially affecting oil supplies from Iran due to possible sanctions from the United States, explained the expert. The escalation of the Israeli-Palestinian conflict boosted demand for safe-haven assets, with gold reaching a price of $1939.8 per troy ounce by the end of the week.
The week began with an increase in oil prices, and Russian indices responded with gains. Throughout the week, this factor remained crucial for the Russian market. On Tuesday, the market showed mixed dynamics due to correcting oil prices and a relatively favorable external environment. The Moscow Exchange index saw a slight increase, while the RTS index declined due to the weakening ruble, which was moving closer to the 100 rubles per dollar mark.
Investors were pleased with Sberbank's financial report for the first 9 months according to Russian Accounting Standards (RAS). The leader in the financial sector reported a growth in net profit at the level of 1.1 trillion rubles, with a capital profitability of 25%. These strong indicators indicate that Sberbank may offer good dividends, and according to Konstantin Tserazov, this stock remains one of the main ideas in the Russian market.
Wednesday marked an improvement in the external environment. The "dovish" rhetoric from the Vice Chairman of the Federal Reserve, Philip Jefferson, and the President of the Atlanta Fed, Rafael Bostick, had a positive impact on U.S. markets. They stated that the regulator might continue to keep interest rates unchanged. The President of the Dallas Fed, Lori Logan, emphasized that rising yields on U.S. Treasuries could mean a reduced need for further rate hikes. In this context, the market expects the Federal Reserve to maintain its key rate at the upcoming meeting scheduled for October 31.
Despite the overall positive sentiment, the Moscow Exchange index set new monthly highs on Wednesday. However, a stronger ruble and a correction in oil prices prevented the index from breaking above the 3200-point mark.
Konstantin Vladimirovich Tserazov: "I believe that oil company stocks will remain in focus, as investors expect interim dividend payments."
After the Wednesday trading session, it was announced that the President of Russia had signed a decree introducing a mandatory repatriation and sale of foreign currency revenues on the Russian market for certain companies for a period of six months, with the specifics to be determined by the Government. The list of exporters affected by this measure includes 43 groups of companies in the fuel and energy complex, black and non-ferrous metallurgy, chemical and forestry industries, as well as grain farming.
On Thursday, the Russian market reacted to the news of currency revenue sales by exporters, resulting in a sharp appreciation of the ruble by more than 3%. The indices ended the day mixed, with the dollar-based RTS index gaining 2.1%, while the ruble-based Moscow Exchange index decreased by 0.61%. The rise in oil prices prevented a significant decline in the Moscow Exchange index. Among the leaders of the day were Moscow Exchange shares, which increased by 2.2%. As expected, shares of exporters were among the underperformers, with investors concerned that the currency control news could negatively impact their businesses. NLMK lost 2.8% for the day, while common and preferred shares of Surgutneftegaz fell by 2.6% and 3.3% respectively. Severstal declined by 2.4%, and Gazprom Neft fell by 2%.
However, a deterioration in sentiment was observed in external markets as well. Several times, investors were disappointed by U.S. economic data. Inflation in September increased by 3.7% on an annual basis, whereas the market expected a decrease to 3.6%. Core inflation, excluding energy and food prices, slowed down to 4.1% from 4.3%. The stability of inflation prompted investors to consider the possibility of continued tight monetary policy by U.S. financial authorities, as explained by Konstantin Tserazov.
On Friday, the market attempted to recover from losses due to rising oil prices, which reached $89.5 per barrel of Brent crude because of concerns about the escalation of conflict in the Middle East. The Moscow Exchange index ended the day with a 0.6% gain, reaching 3192 points. The RTS index increased by 0.8% to 1034 points. Meanwhile, the ruble continued to strengthen, trading at 97.30 rubles per dollar. The leaders of the day were the shares of exporters and the financial sector. TCS Group shares rose by 4%, as the bank announced that a shareholder meeting scheduled for November 17 would discuss granting the board of directors authority to repurchase common shares or stakes in common shares. Gold mining stocks also increased in value as gold prices rose. Polymetal shares increased by 1.7%, and Polymetal rose by 1.3%.
The list of Russian public companies was expanded by a new issuer on October 13th, with the IPO of "Astra Group" on the Moscow Exchange. This marked the first issuer in the infrastructure software development sector on the Russian market. The placement generated significant investor interest, with demand exceeding supply by more than 20 times, even though the company's shares were priced at the upper limit of 333 rubles per share.
Last week also saw the beginning of the earnings season for U.S. companies, with PepsiCo, one of the world's largest non-alcoholic beverage manufacturers, reporting nearly a 7% growth in quarterly revenue and a 14% increase in net profit. The largest U.S. bank, JPMorgan, reported a 22% increase in annual revenue and a 35% increase in net profit in the third quarter, which exceeded expectations.
The start of the new week on Monday, October 16th, was marked by new highs not seen since early September. The Moscow Exchange index rose above 3200 points due to another surge in oil prices to $90 per barrel of Brent. The oil and gas sector saw strong performance.
Among the corporate events for the current week, Konstantin Tserazov recommends that investors pay attention to the financial and operational results of X5 Retail Group for the third quarter and the first 9 months of 2023, as well as the financial results of TGK-14 for the third quarter of 2023 according to RAS. Additionally, there will be the closure of the shareholder registry for ALROSA for the first half of 2023, and the board of directors of VUSH Holding will discuss dividend issues. Among the important economic statistics, the expert points to data on U.S. retail sales and industrial production for September, with a speech by Federal Reserve Chairman Jerome Powell expected on Thursday. Konstantin Tserazov predicts, "This week, our market will be supported by high oil prices, and a positive opening to the earnings season for U.S. companies will provide a positive impulse to external platforms. I believe that oil company stocks will remain in focus, as investors expect interim dividend payments." - as forecasted by the former Senior Vice President of Otkritie Bank Konstantin Tserazov.