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Saturday, October 22, 2016

Bondholders ahead of depositors

The Russian market of collective investments have rewarded shareholders in the third quarter. But in the fourth we must prepare for the correction.

photo: Gennady Cherkasov

Successful first quarter

The third quarter was quite successful for the Russian stock market and for the market of collective investments. In early September, the Russian MICEX index managed to renew its historical maximum: during trading hours on 8 September the index reached 2063 points. However, the pressure of declining oil prices in mid-September, investors ‘ concerns about the level of the rate before the meeting of September 20-21, and also slowed down the inflow of funds from foreign funds investing in Russian assets, does not allow the market to stay at that level. By the end of September, the MICEX index stood at 1,978 points, and overall for the quarter increased by 4.6%.

For raising funds from mutual Funds is not the first leading bond funds, because they are the most stable and predictable in the face of continuing uncertainty in global financial markets. Mutual funds rouble bonds show a yield higher than rates on Bank deposits, which also makes them more attractive for investment. “In fact, it is the only conservative tool, able to show double-digit yield at an interval of one year. However, geopolitical tensions, stagnation of the oil prices and the increased volatility of the ruble have provoked renewed interest to the exchange bond strategies,” says Konstantin Kirpichev, the head of sales and marketing MC “Raiffeisen Capital”.

Leaders and outsiders

On the market there was a surplus of ruble liquidity. The banks now there is no need to attract expensive liabilities from the public, and they reduce rates on deposits. On the other hand, we live in the conditions of easing of monetary policy, which remains hard. Investors buy bonds to earn on revaluation at lower rates in the future. “Foreign investors buy bonds, earning the difference in interest rates. They take us dollars at 0,5–1% per annum, converted into rubles and buy BFL, getting 6-7% per annum as the profit”, — says Andrey Shenk of the criminal code “Alfa Capital”.

The leader of this year were mutual Funds that invest in the electricity sector, which has grown by more than 82%. But the future growth potential of the sector is limited, and the probability of a correction is higher than the probability of continuation of the current trend.

In the third quarter was a strong showing funds in the consumer sector: many companies in the industry demonstrated high financial results, which attracted the attention of investors. In the process of restoration of economy of the Russian Federation companies of the consumer sector will continue to show results better than the market.

The outsiders are those mutual Funds that invested in foreign currency assets. The ruble strengthened a lot since the beginning of the year, which negatively affected the yield of such funds in the national currency.

Against this background, investments in Russian stocks was justified by the good dividend expectations (average dividend yield of shares included in the MICEX index, is around six percent) and hopes for the Russian economy out of recession at the end of 2016. “My role is also played by the stabilization of oil prices on the background of the efforts of OPEC to limit oil production and rising world demand for hydrocarbons. Funds international stocks also had relatively small inflows, investors believe in the prospects of technology stocks because of the constant launch of new products and activity in mergers and acquisitions,” said the chief of analytical Department UK “BK-Savings” Sergey Suverov. The yield on funds investing in global technology stocks, could be of the order of 7% for the quarter.

Good advice

If successful, the interaction of the countries — members of OPEC and Russia, which implies the reduction of production by 700 thousand barrels per day or more, until the end of the year can yield very good show funds focused on the shares of oil companies. “For conservative investors attractive mutual Funds bonds, where under stable or slowly rising in price the ruble will continue to decline in yields against the background of purchases by foreign investors playing increasingly expensive as the ruble and the expected next year the new lower rate of the Central Bank of the Russian Federation”, — says Dmitry Aleksandrov of the IG “Univer”.

Investors should note that if oil prices fail to rise above $53 per barrel, it is highly probable imminent reversal of the ruble on the level of 61,4–61,7 per dollar with quick movement in around 65-66. In General, we note that risks in all markets continue to grow, both within Russia and outside, and therefore it should be prepared for the global correctional movements after the American presidential elections in December — February of next year. “Money market funds and funds focused on short-term bonds will be a good solution for entrance next year”, — said Artem Deev of financial Amarkets.

“In October, most likely, we will see rather nervous behaviour of investors,” says brick. In his opinion, the main reasons for this behavior will be the geopolitical risks that may outweigh the growth of the ruble, and rising oil prices. In the long term to the end of the year in the absence of serious shocks in the financial markets expect the preservation of the ruble in the range of 62-67 RUB/$ and, consequently, recommends that a significant portion of assets to invest in conservative ruble instruments. “In particular, at the end of 2016, the funds of rouble bonds can bring 10-12%, and when investing in the moment with the horizon of 12 months — to 8-10%. The currency part of the portfolio to invest in mutual Funds, us and European shares,” the analyst says.

Schenk also agrees that before the end of the year, market volatility may increase, as ahead of us a series of events, leading to increased uncertainty. For example, the US election and final meeting of regulators this year. Therefore, most likely, stock funds will be in less demand, but the popularity of the bond mutual Funds will continue. In General, the market in recent years has brought many interesting observations. For example, the active ruble strengthened against the background of unprecedented increasing political risks. Moreover, it is not only rising oil prices — even for a short time intervals could not see a sharp reaction of the Russian currency on negative news. “Against this background, there is a slow drop in the price of OFZ that is suggestive of a gradual sales of securities of the Russian residents, or significant sales of foreign currency — from their side,” — said Alexandrov.

External factors

In the fourth quarter greater will be the role of external factors such as oil prices, which can in a favorable situation to try to reach $ 55 per barrel, whereas a pullback below $ 50 is unlikely to surprise market participants.

Investors will also pay attention to the possibility of imposing new sanctions against Russia and the shared rhetoric between the Kremlin and the West, deteriorating relations could lead to cooling, and so the low interest of non-residents to the Russian market. On the other hand, we have become accustomed to live in the sanctions regime, so nothing particularly surprising happens, although the Russian market is already longing for the days of stable growth.

Sanctions . Chronicle of events

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