Page 22 - BNE_magazine_05_2020

22 I Companies & Markets bne May 2020
bne:Funds
Is it time to buy the dip?
Ben Aris in Berlin
Is it time to buy stocks again? Equity markets sold off massively around the world at the end of February due to the burgeoning coronavirus (COVID-19) pandemic, but as the spread of the virus has reached peak in Asia and more and more European countries are seeing their curves flatten, a few investors are “buying the dip” and purchasing equities.
A record $100bn of capital outflows has left emerging markets in the last three months, but as the Institute of International Finance (IIF) reports, the outflows are clearly starting to slow and should then reverse. Equity outflows have been much larger than debt outflows.
The Russian market has been particularly hard hit and the number of infections is still rising, but stock prices have now stabilised. Moscow Mayor Sergey Sobyanin said this week that Russia was “still in the foothills” but the peak is expected to arrive in the next week or two.
The expectation is that after the pandemic is over – which could happen within a month – there will be a rebound. While the shape of the rebound is still not clear, most qualified commentators are ruling out both an extreme L-shape and V-shape, with the majority preferring some sort of “fat U” recovery. Equity prices are expected to go up again, starting in
RTS vs Brent oil price, difference x20 price of oil indicator
the developed markets, but Russia is well placed amongst the emerging markets to see a strong rally thanks to its massive monetary and fiscal reserves.
A few investors have already started to buy again, and after losing 40% YTD at its worst in the week of March, the dollar- denominated Russia Trading System (RTS) has clawed back some of its losses and was down by a less catastrophic 31.4% YTD as of April 17.
The oil and gas sector remains in the front line as the fate of Russia’s biggest hydrocarbon producers is intimately tied to the efforts to create a new OPEC++ production cut deal that will reduce output of oil by 9.7mn bpd that was agreed on April 14. The sector’s stocks are down by 39% YTD and have not moved much since the selling began in the last week
of March.
OPEC expects a historic record fall in oil demand this year of 6.8mn barrels per day (bpd), the organisation said in a report on April 16. Global oil demand in 2020 is projected to be 92.82mn bpd. The new OPEC++ deal can cut Russia's oil and gas condensate output by 1.3mn bpd compared with 2019, to 10.14mn bpd, whereas under the old OPEC+ deal it only had to cut 300,000 bpd.
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