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32 I Outlooks 2018 bne February 2018
credit business remains depressed.
Consumer lending has recovered and was growing in double digits by the end of 2017 but has still not made a noticeable impact on retail turnover. By October the rate of growth of consumer lending was 10% – faster than the rate of growth of incomes – worrying the CBR, which said it may introduce tighter limits on consumer loans in 2018 t head off a bubble forming.
Industrial production moved back into growth mode in 2017, but it remains very fragile. That bodes badly for 2018 as the economy has not built up any momen- tum for a recovery. Industrial production growth in September was only 0.9%.
Russia and Opec decided to prolong the coordinated oil supply cuts to the end of 2018 at a meeting in Vienna on November 30, with Russia maintain- ing its 300,000 barrels a day cut.
Russia’s oil production has been con- strained by the deal at just under 11mn barrels a day, with a result that is good for the price of oil (and so the budget), but not so good for the producers.
Telecoms, media and technology remain by far the most dynamic part of the Russian economy. The essentially global nature of the business and Rus- sia’s strong reputation as an innovator and developer mean the sector has been the least affected by sanctions.
Online commerce is benefiting from the “leapfrog” effect; as the existing infra- structure is of poor quality, companies are going straight to state-of-the-art solutions. With internet penetration more than 100% and the online retail community larger than that of even Germany, e-commerce makes any suc- cessful business extremely lucrative.
While the real estate sector is on its knees, warehousing is the exception thanks to demand from e-commerce companies, helping boost the volume of new space by more than 50% in 2017.
The cash-strapped Russian govern- ment has spent much of the last
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two years casting about for new sources of revenue following the collapse of oil prices in 2014.
The federal tax authority completely overhauled its IT system, improving effi- ciency and even enabling a cosmonaut on the International Space Station to pay his taxes online from space. Russia finished 2017 with a 1.5% GDP deficit and the official forecast for 2018 is a deficit of 3.2% of GDP. However, with oil trading over $70 in January Rus- sian Finance Minister Anton Siluanov said in the same month that Russia
will probably end 2018 with a small surplus if things remains unchanged.
Russia’s stock market re-rated in 2016 as the recession ended, political tensions eased somewhat and the best names became too cheap to ignore. The dollar- denominated Russia Trading System (RTS) index gained 52% in 2016 on $1.2bn of inflows thanks to a “Trump bump” after the election, making it one of the world’s best performing markets.
Investors were convinced that the new president would quickly remove sanc- tions on Russia, which did not happen.
In comparison 2017 has been the worst year for Russian equities since 2013, with Russian-dedicated funds seeing a $1.4bn outflow YTD as of December 1, 2017.
The good news is IPOs and SPOs are back with five issues in 2017 that were met by enthusiasm. The pipe- line for 2018 is even bigger with
at least half a dozen companies expected to sell shares in 2018.
The RTS was range bound for most of 2017, fluctuating around the 1,000-
1,100 mark – less than half its May 2008 all-time high of 2487. In 2018 the market is likely to remain range bound as little is expected to change. BCS expects the RTS to trade in the 1,050-1,250 range, which represents a small upside for index trackers. The consensus forecast
is for the RTS to end 2018 at 1,300, a 13% upside from December levels.
At the start of 2017 the Ministry of Finance said it would cover the federal budget deficit by issuing RUB1.1 trillion of OFZ treasury bonds each year for
the next three years, ensuring plenty
of supply. The ministry had already cut the issuance target for 2017 to around RUB600bn by the end of the year and similar reductions are expected in 2018.
That will leave more room for cor- porate issues, which have also been growing steadily thanks to the falling cost of borrowing. In October alone a total of RUB280bn ($4.8bn) of bonds was placed by Russian companies,
a 250% increase year-on-year.
CBR's plans to cut the key interest rate even further in 2018 will encourage more issues, but as inflation may return to its 4% average in 2018 from the end of 2017 record lows of 2.5%, the conditions in the bond market may not be as benign in 2018 as they have been in 2017.
Russia’s Eurobonds have been going in the opposite direction. In October, there were only two Eurobond place- ments by Russian companies for a total of $426mn, compared with seven placements for a total of a total of $2bn in September and six place- ments for a total of $3.2bn in October 2016. The Eurobond segment is over- saturated as it doubled in January- October to $18.5bn, year-on-year.
Read the full Russia Report here:
http://pro.intellinews.com/russia-outlook-2018-134716/?source=russia
Read the Ukraine Outlook here:
http://pro.intellinews.com/ukraine-outlook-2018-134717/?source=ukraine