Page 59 - IFR Opportunities in Russian capital markets

CHAPTER03
ifrintelligence reports/Opportunities in: Russian Capital Markets
Figure 3.5: Global emerging markets – country weightings, Sept 2006 (%)
% 18
16 14 12 10
8 6 4 2 0
Source: Emerging portfolio fund research (EPFR)
Russia's rising index weightings
The weighting of Russian stocks in Morgan Stanley's influential emerging market index, the MSCI, has also been rising in the last two years. This index is important, as many investors into GEMs use the MSCI index to measure the performance of their funds – increasing Russia's weighting usually means a greater allocation of money for investment into Russian stocks.
The key event for the MSCI index was the fall of the ring-fence around Gazprom's shares, when special rules that precluded foreign investors from buying locally-listed shares were removed at the start of 2006. The MSCI included Gazprom in its index in May and made the company the biggest stock in the GEMs overnight, overtaking Korea's Samsung, with a market capitalisation of US$250m.
The performance of the Russian equity market is made more difficult to follow as the mark-ups of the various indices are very different, a function of the companies that are included into each.
The traditional index has been the RTS, but the trading volumes (on organised markets) on the MICEX are bigger. Oil and gas play a much larger role in the RTS than the MICEX index. And the MSCI index has an even stronger oil and gas bias, as shown in Table 3.15.
This bias towards Russia's strong suits meant that all the indices gave a pretty good picture of how the Russian equity market had been developing in recent years, since oil and gas stocks have been the main focus of attention. However, since the middle of 2006, when there was a massive switching out of these commodity stocks into the shares of companies with exposure to the domestic consumer spending story, none of the indices has given a very good picture of the state of play on the market. The bottom line is: "stock picking has become important", according to most bankers.
Table 3.15: Russian indices’ weight, by sector, Mar 2007 (%)
Sector RTS (since 15 March) MICEX MSCI (since 1 March)
Oil and gas 53.4 Metals and mining 12.7 Fertilisers 0.4 Banking 15.3
Telecommunications Electric utilities
Retail and consumer goods Media
Conglomerates Automotive Defence Transportation
32.9 64.6 13.0 8.6 – – 18.4 10.8 8.2 10.5 9.6 7.0 13.8 4.7 1.8 – 0.5 0.2 0.4 – – – 1.2 0.5 0.4 – 0.2 – – 0.3 0.3 –
Source: RTS, MICEX, Bloomberg, Deutsche Bank research estimates (prices as of February 2007)
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