Page 12 - BNE_magazine_07_2020

12 I Companies & Markets bne July 2020
And right on cue funds started flowing back into exchange- traded funds (ETFs) this week that have become the
main vehicle used by foreign investors investing into Russian stocks.
“Judging by equity ETF flows, last week was the second best for Russian stocks this year. Overall inflows amounted to $72mn – the largest weekly intake since the first week of January. Moreover, net inflows into GEM equity ETFs also resumed at a reasonable pace for the first time since COVID-19 hit the tapes in January,” Vyacheslav Smolyaninov, chief strategist and deputy head of research at BSC Global Markets, reported on June 11.
The average long position among the most liquid names traded on MOEX rose by a further 2.4% in the week ending June 10. Short positions are falling at a more aggressive pace – down c15%. ‘Smart money’ were net sellers for the second week
in a row, albeit marginally.
“Flow momentum remains encouraging for speculators and further underperformance of EMs relative to DMs is being challenged. We continue to read positively into the data from a short-term, flow-driven, speculative perspective.
Yet our bottom-up 12MF RTS index target stands at 1,400, corresponding to a Hold – the market is fairly valued overall,” Smolyaninov said.
BCS GM reports that the most popular stocks were Russia’s two biggest supermarket chains, X5 Retail Group and Magnit, that have been heavily sold during the crisis for obvious reasons. But it appears both stocks have reached the “too cheap to ignore” stage and brave investors are calling the bottom and buying again. Likewise, investors were buying mining company Norilsk Nickel enthusiastically, which suffered a catastrophic oil spill last week and was also
heavily sold as a result.
Markets turned on May 13
Salter argues that the rally in EMs really started to take off
on May 13 as investors became more confident that a recovery had started and began to shift investments from the safe haven EM markets to buy stocks in the more risky countries.
Investors into Russia are feeling especially relieved, as the country is one of those leading the EM pack out of the ruins. Despite losing nearly 40% of its value in the last months, the Russian stock market has rallied 10% in the last month. The RTS is currently down 22% YTD, but a few sectors have clawed back almost all the ground they lost since January.
As the recovery in the stock market becomes the consensus view, Sberbank CIB, the investment banking arm of the state- owned retail banking giant, just upgraded its year-end target for the leading dollar-denominated Russia Trading System (RTS) index to 1,500 on June 8, despite the index falling into the 900s in the bowl of the crisis.
EM weekly fund flows (% of AUM)
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What has changed?
What is driving the growing confidence in stocks? The battle- hardened EM investors have been through multiple crises in the past and have become inured to the experience of seeing their portfolio’s collapse like a soufflé in a cold draft. Analysts have been at pains to point out that some of the biggest gains to be made in EM investing is to buy just after a crash. And the big difference with this crisis is that it has been a public health crisis and not a financial crisis, so apart from the stop-shock to commerce, not that much damage has been done to the financial system.
The longer the shutdown goes on, the more financial damage is done, but now that enough has been done to ensure health systems are not overwhelmed, most governments have decided to reopen their economies to prevent the nature of the crisis morphing into a wave of bankruptcies.
And there is a lot of spare cash sloshing around the system after governments pumped billions or trillions of dollars into their economies. As Igor Burlakov, the chief business officer of Sova Capital predicted in an interview with bne IntelliNews in April, investors have returned to the Developed Markets (DMs) first and then switched to the EMs after those rallied.
“The key is to go into top-quality assets and stay invested,” says Burlakov. “The DM economies should see a V-shaped recovery and it is even possible to see the financial markets reach
new all-time highs. The EMs will have a more pronounced U-shaped recovery with a longer bottom. They will be slower to recover, as they have fewer fiscal and monetary tools to stimulate their recoveries,” Burlakov told bne IntelliNews in
an interview.