Page 36 - bne_Magazine_September_2018

36 I Special focus bne September 2018
equity (-$3.8bn) markets. This June figure caps off the weakest quarter since the end of 2016, with emerging markets facing a variety of headwinds. Most major EM regions were hit with outflows in June: Africa/Middle East (-$4bn);
EM Asia (-$2.7bn); and Latin America
energy companies in the MSCI Russia index exceeds 50% and the result of the meeting of OPEC+ on June 22-23, at, which it was decided to increase pro- duction by 1mn barrels per day, should drive these stock up further, analysts speculate.
ket’s performance has been closely tied to the price of oil. However, as politics have come to player a bigger role the relationship between the cost of a barrel of the black stuff and the height of the leading dollar denominated RTS index has broken down. That relation was further weakened by the re-introduction of the so-called budget rule at the start of this year, where all government oil revenues from when oil prices are over $40 are siphoned off into the state’s rainy day fund.
There is a handy rule of thumb for check- ing if Russian share prices are over or under valued: the value of the RTS index is simply x20 the cost of a barrel of oil.
Although this relation doesn't work as well as it used to – despite the big out- performance of many of the oil company stocks this year – according to the rule of thumb the RTS is undervalued by over 400 points as of September 1, the biggest gap it has displayed for at least two years.
At the time of writing the RTS was 1,085 and oil prices are averaging $77.1, which means the implied RTS value should
be 1,541. Analysts agree that the RTS
is probably undervalued: BCS Global Markets has a year end target fro the index of 1,350, but given the higher than expected oil prices so far this year, even that looks conservative – if it weren’t for the politics dogfight between Moscow and Washington.
“The funds are flowing out, but many funds were already overweight Russia and are maintaining their bets”
(-$2.5),” the Institute of International Finance (IIF) said in a note.
The funds are flowing out, but many funds were already overweight Russia and are maintaining their bets. Although the weight of Russia in the MSCI Emerg- ing Market index is only 3.5%, fund managers have increased the weight
of Russian stocks in their portfolios to overweight again. The Lazard Emerging Markets Fund invested almost 10% in Russia, and Templeton Emerging Markets and Fidelity Emerging Markets is over- weight with more than 8% of its portfolio in Russian stocks, Vedomosti reports.
The oil and gas sector has been par- ticularly attractive as the average oil prices this year is well over the budget assumption of $40 per barrel and closer to $60 so far this year. The weight of
However, equity investors remain unsettled by the raft of political risks Russia is facing as Putin squares off with Trump and more painful sanctions loom. Many managers are simply looking for a safe haven until the rumble is over.
“As trade tensions escalate, fund investors have taken refuge (and sought opportu- nity) in US assets. These now represent 58% of global fund portfolios – the high- est level since 2016, prior to the presiden- tial election,” IIF said in a note.
Stocks under fair oil value
The leading RTS was down 10% YTD as of the end of August, but just how much has the market sold off?
As about two thirds of the capitalization of Russia’s stock market is made up of oil and gas names and in the past the mar-
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Avast to enter London bourse in bid to raise up to $1bn Jaroslav Hroch in Prague
Avast, which owns the popular consumer antivirus company AVG, will apply to list its shares on the London Stock Exchange in the hope of raising $200mn (CZK4.1bn) in primary proceeds from an IPO, the Czech-founded company announced on April 12.
See page 2
St Petersburg's start-up scene flourishes on high talent and low costs
Contents
Avast to enter London bourse
in bid to raise up to $1bn 1 Avast to enter London bourse in bid to raise up to $1bn 2 St Petersburg's start-up scene
flourishes on high talent and low costs 3 Romania entrepreneur aims to put home-grown UAV defence technology industry on the map 6
FinTech
Russia's mobile major MTS increases stake in Ozon to 16.7% 9
Blockchain
Romanian startups at the heart
of blockchain energy trading rally 10
Central Europe
Russian-Lithuanian startup Gosu.ai
raises $1.9mn from Russian and
French investors 13
Eurasia
Iran hit by cyber attack that left US
flag on screens 14 Iranian government set to block hugely popular Telegram messaging app 15 Iran's black market phone disconnection drive pushes up legal mobile imports 15
Eastern Europe
Internet catches up with TV on Russian
ad market 17 Sales of connected appliances jump
in Russia 17 Russia's HeadHunter Group seeks
to raise $250mn with NASDAQ IPO 18 Russia ranks second in the world
for digital piracy 18 Russian messaging service Telegram raised another $850mn with ICO 19
Southeast Europe
Russia's HeadHunter Group seeks
to raise $250mn with NASDAQ IPO 20
The Regions This Month 21
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Filip Brokes in St Petersburg See page 3