Konstantin Vladimirovich Tserazov: «Energy prices may consolidate in the second quarter»

How did the first quarter of 2011 turn out for the domestic market, and which sectors and companies should be paid attention to in the short term, says Konstantin Vladimirovich Tserazov, Deputy Head of Global Markets at Troika Dialog.

The first quarter of 2011 was successful for the Russian stock market. The RTS index has grown by 15% since the beginning of the year, although it somewhat slowed down in March, the MICEX index added 7.5% in the quarter. This is the best result among both the BRIC countries and developed countries, says Konstantin Tserazov. Although the market feared that weakening demand in developed economies and the policy of monetary “pumping” of the global economy would lead to disagreements among the leading countries, however, these fears have not yet materialized. The expert recalled that the US Federal Reserve continues its policy of affordable money, under which the US Federal Reserve in the first quarter of 2011 bought government bonds in the amount of approximately $110 billion per month, while the Fed's assets grew to $2.7 trillion. against $2.3 trillion. in April 2010. In accordance with market expectations, following the meeting of the US Federal Reserve, the regulator left the base interest rate in the range of 0-0.25% per annum, reiterating that it intends to maintain low rates until a stable positive trend in the economy appears, Konstantin Vladimirovich Tserazov said.

High energy prices are supported by an excess of monetary liquidity, as well as the escalation of geopolitical problems in the Middle East. The escalation of the conflict in Libya has led to a reduction in the country's oil production by more than 1 million barrels per day. Thus, oil is becoming more expensive, without fundamental economic reasons. It is quite possible that oil prices may consolidate or go down in April, which will have a negative impact on Russian indices. Nevertheless, in April the markets may be supported by the reporting season of large US companies, Konstantin Tserazov emphasized. The outflow of capital continued - in the first quarter of 2011, the net outflow of capital from Russia reached $21 billion against $14.7 billion in January-March 2010 and $21.5 billion in the fourth quarter of last year. In January-March 2011, inflation in Russia increased to 3.8% against 3.2% a year earlier. After a strong surge in January (2.4%), consumer price growth slowed to 0.8% in February and to 0.6% in March. At the same time, in annual terms as of March 2011, inflation was 9.5%. Explaining the reasons for the slowdown in inflation, Konstantin Tserazov pointed to a significant decrease in the growth rate of food prices due to the measures taken by the Russian government, including the abolition of duties on potatoes, vegetables and a number of other goods, as well as grain interventions.

Nevertheless, despite the slowdown in price growth in February 2011, inflationary pressure remained significant, and therefore, from February 28, 2011, the Central Bank of the Russian Federation raised the refinancing rate by 0.25 percentage points - from 7.75% to 8% per annum. The regulator explained its decision by maintaining high inflationary expectations, taking into account the formation of prerequisites for the inflow of capital into Russia against the backdrop of high world oil prices, as well as in the presence of certain risks for the sustainability of economic growth, says Konstantin Tserazov.

Against the background of expensive oil and the tightening of the monetary policy of the Central Bank of the Russian Federation, the ruble showed a noticeable strengthening. According to the results of the first quarter of 2011, the dollar lost 2 rubles 21 kopecks to the Russian currency, having fallen by 7%. The euro weakened against the ruble over this period by 39 kopecks, losing about 1%. The value of the dual-currency basket decreased by 1 ruble 35 kopecks, or approximately 4%, Konstantin Tserazov noted.

The first quarter was positive primarily for Russian oil and gas companies and banks. The analyst noted the good results of "Gazprom", for which there is an exceptionally successful conjuncture on world markets. Due to the accident at the Fukushima Daiichi nuclear power plant, Japan is forced to increase gas consumption for electricity generation. In addition, the fears caused by the disaster at the Japanese nuclear power plant spurred the Europeans to look for an alternative to nuclear energy, which naturally led to an increase in gas demand, explains Konstantin Tserazov.

Among the banks, Sberbank became the undisputed favorite, publishing strong 2010 IFRS financials. At the same time, the planned sale of the state block of shares, as well as the announced intention to place depository receipts in the coming months, are the drivers of high interest in the leader of the Russian banking sector.

Outsiders, according to Konstantin Vladimirovich Tserazov, were companies in the power sector. Investors do not like the uncertainty in the papers of energy companies, which is associated with the possibility of strict state regulation of the industry, in addition, the non-transparent policy of setting electricity tariffs is also frightening.

Speaking about the forecasts for the coming months, Konstantin Vladimirovich Tserazov emphasized the high medium-term growth potential in non-ferrous metallurgy, which, in particular, is evidenced by the proposal of Norilsk Nickel management rejected by Rusal to buy 20% of MMC from Rusal with a 38% premium to the market. The analyst also singled out Polymetal and Polyus Gold, whose quotes could be supported by rising prices for precious metals in the coming weeks.

Investors may also be interested in the financial sector - in particular, the positive results of the secondary offering of VTB shares, the planned privatization of state-owned shares, consolidation in the market indicate a possible high demand for bank papers, Konstantin Tserazov concludes.