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42 I Outlooks 2019 bne February 2019
profitable September in three years
and Russian banks also made more profits in November than they had
at anytime in the last four years. Companies had earnings for the month coming in at RUB1,580bn ($23.7bn). The cumulative profits for the year to date were RUB10,151.7bn, against the RUB7,385.8bn earned in September 2017 and RUB8,099.4bn earned in 2016.
These good results have led businesses to be more optimistic about the outlook for 2019 than they have been in years – although it is the service sector that is most positive, while manufacturers are more sanguine, according to IHS Markit.
“The latest IHS Markit Russia Busi- ness Outlook survey indicates stronger optimism among private sector firms
in Russia, with all net balances rising
to in October. The activity net balance (+25%) is slightly below the global average (+28%), but above the trend for emerging markets (+22%) and at its highest mark for one year. Business confidence is boosted by forecasts of greater client demand, access to new markets, product development and planned investments in business expan- sion,” Markit said in a press release. “Robust predictions towards future output are centred on the service sector, however, with manufacturing firms noting the weakest degree of optimism since October 2016. Service providers are at their most upbeat in a year.”
Equities
As for equities, despite oil prices and sanctions, the Russian market has out performed most of the other emerging markets by staying flat (MSCI Russia -0.4) in 2018, while the others suffered from the EM sell off (MSCI EM -16%).
What is holding the market up is the extraordinary dividends; add dividend payments into the return on equity investments, and the market is up
by 5% in terms of total returns.
Other leading CEEMEA markets were significantly underperforming in 2018, with Turkey (-43%), Greece (-31%), South Africa (-27%), Egypt (-22%),
and Poland (-14%) all down substantiall.
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The outlook for equities in 2019 is also for an essentially flat market, but much will depend on where oil prices go. VTB Capital (VTBC) said in a note that it sees a baseline scenario with $69 oil that implies the RTS index
months of this year than it earned in the full year for the last three years, RUB212bn ($100mn). Cumulatively the banks earned RUB1.28 trillion over 11M18, but if the big commercial banks taken over by the CBR last year
“Russian companies had their most profitable September in three years”
will reach 1250 in 2019 (flat). The upbeat scenario assumes $75 oil for an RTS index of 1540 (25% gain). And the pessimistic scenario has $60 oil and the RTS at 1000 (19% loss).
Business
On the business front the action is contained in four leading sectors: raw materials, retail, banks and tech.
There is not much to add to the raw materials story other than to say the ruble devaluation improved their profits and as the owners are reluctant to invest many of these companies
are paying extraordinary dividends.
Banks
Russia’s banking sector recovery is well underway following a mini-crisis in the autumn of 2017 and several years of zero profits before that.
The sector turned in its best aggregate profit since March in November 2018, and earned more in the first eleven
Russia stock market index (eop)
are counted out then the profits are even higher at RUB1.7 trillion –1.5 times more than the result for Novem- ber last year, according to the CBR.
The CBR clean up of the banking sec- tor is in its end game after the num- ber of banks in Russia fell below 500 in November from over 4,500 in the 1990s, which has caused a consolida- tion and boosted the biggest banks.
Retail
There is a mood of pessimism amongst Russian consumers.
Real disposable incomes fell in year-on- year terms in 2018 and households are anticipating the hike in VAT from 18% to 20% that comes into effect in January 2019. The Russian population is also likely to print its first full-year decline
in a decade, with net migration failing to offset the natural decline for the first time since 2008. Otherwise, the labour market data looks solid, with nomi-
nal wage growth exceeding 8% for 14