Page 63 - IFR Opportunities in Russian capital markets

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ifrintelligence reports/Opportunities in: Russian Capital Markets
Table 3.18: Russian share price performance and P/E ratio, Jan 2007 (US$, %) (Cont.)
UES
Ufa Refinery
Ufaneftekhim
UralSib
Uralsvyazinform
Veropharm 37.00 VimpelCom 85.00
Price* (US$ p/s)
Last week (%)
8.7
0.0 –1.6 –2.9 13.2 16.4 8.0 8.4 5.1 6.7 –1.6 1.4 4.2 7.7 –0.6 25.3 2.9 5.9 3.6
Month (%)
13.0 8.8 –1.6 9.7 10.6 23.7 9.7 14.2 7.9 2.9 21.2 2.0 5.0 6.6 6.7 22.9 0.0 2.9 3.6
Year to date (%)
3.7
8.8 –1.6 6.3 11.5 16.5 7.7 6.6 8.2 35.8 10.5 2.0 –3.3 –8.3 3.8 13.5 0.0 3.2 1.4
12 months (%) P/E**
120.0 21.5 –7.5 – –15.1 – 17.2 19.6 92.1 13.0 – – 78.9 21.0 61.3 10.5 55.9 – 72.2 – 106.6 22.2 52.1 17.0 96.2 – 143.0 21.5 70.9 20.2 –66.3 – – – 127.8 – 68.6 –
1.12 1.85 3.10 0.03 0.07
Volga Telecom
Volzhskaya GES
Vortkinskaya GES
Vozrozhdenie 63.00 VSMPO 299.00 Vyksa Pipes 1,354.00 Wimm-Bill-Dann 61.00 X5 Retail Group 27.00 YUKOS 0.59
6.45 0.41 0.72
Zagorskaya GAES Zeiskaya GES Zhigulevskaya GES
Note: *As at close January 26 ‘07
** Based on 2007 earnings forecasts Source: Alfa Bank research, DataStream
0.02 0.36 0.29
Traditional market drivers
Traditionally, the oil price has been the main driver of valuations on the Russian stock market and it remains the most important factor. However, more recently, as the economy grows and the size of the Russian stock market capitalisation grows, several other factors have come into play. The performance of other emerging markets is having a greater impact on the Russian market; domestic consumption is becoming a major economic driver and is making itself felt on the equity market; and growing domestic investment is going to be a driver.
The seven - year boom
A combination of extremely low interest rates in the industrialised markets and high commodity prices driven by the strong growth of emerging markets combined to create near perfect conditions for the emerging market stock markets.
Unable to earn much of a return in the traditional markets, international investors have piled into the emerging markets en masse and sent valuations soaring in a seven year-long investment binge.
During the sweet spot for emerging markets investors became almost immune to risk. A telling example was the spread on the yields between Russian sovereign Eurobonds and the benchmark US treasuries, which was falling steadily at the start of 2006.
However, in May 2006 the party seemed to come to an end after the US federal reserve upped interest rates to 5.25% on treasury bonds and the fear of further rate hikes sent emerging market investors running for the door. Then a year later a sell-off in China, coupled with the first round of rate hikes in nearly a decade by the Bank of Japan, sparked another sell-off around the world.
Clearly, the seven years of benign external conditions are coming to an end and emerging markets are going to face competition again from more traditional and safer investment options in the in- dustrialised counties of the world. However, during these good years many of the emerging markets, including Russia, have made great strides forward. The question is what balance investors will strike in this new more competitive environment when choosing between investment destina- tions. Or put another way: to what extent have the emerging markets emerged?
While the rise of the RTS clearly mirrors the rise in oil prices since 1999, more recently the index has also become more closely correlated to the performance of other global emerging markets.
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