Konstantin Vladimirovich Tserazov: «Market dynamics over recent weeks require correction»

Another short trading week, from March 4 to 7, brought positivity to the markets. In our interview, the former senior vice president of Otkritie Bank, economist Konstantin Tserazov, spoke about the most important events in the market and in the banking sector.

At the end of the trading week from March 4 to March 7, the market showed positive dynamics — the Moscow Exchange index grew by 1.8%, rising to 3315 points, the RTS index — by 2.2%, to 1152 points. The industry index of financial companies gained 0.3% during this period. By the end of the week, Brent oil was trading at $82.2 per barrel. Gold marked the conquest of another historical high, rising in price to $2161.8 per troy ounce. The dollar fell by 1.07 rubles over the week, the rate reached 90.6 rubles per dollar. The growth in consumer prices slowed again — in the first week of March the figure was 0.09% versus 0.13% the week before. In annual terms, inflation remains at approximately 7.6%.

The positive market dynamics were due to corporate stories, dividend expectations and a favorable external background, believes Konstantin Tserazov. In particular, investors reacted quite positively to Fed Chairman J. Powell’s speech to the Financial Services Committee of the US House of Representatives with his semi-annual report on monetary policy. The head of the Federal Reserve said that the agency is in no hurry to reduce the key rate, but did not rule out the possibility of reducing it this year. The rate, according to Powell, is likely at the peak of the current cycle. Powell reiterated that the Fed needs further evidence of a sustained decline in inflation towards its 2% target. «The economic outlook is uncertain, and continued progress toward our 2% inflation goal is not guaranteed,» the Fed chairman said. At the same time, the head of the department said that he does not consider the current situation a sign of movement towards recession. The opening of the next two-day meeting of the US Federal Reserve on the key rate will take place on March 20. The market believes that no decision on changing the rate will be made at this meeting — the derivatives market estimates the probability of an interest rate reduction in March at 5%. Investors expect the regulator to begin lowering it in June, estimating the probability of this event at 70%.

Konstantin Vladimirovich Tserazov: «Dividends for 2023 were higher than the market expected, which will have a positive impact on Moscow Exchange securities in the medium term.»

Another notable event of the week, according to Konstantin Tserazov, was the next meeting of the European Central Bank, which opened on March 7. At the end of the meeting, as the market expected, the European Central Bank left all three interest rates at the same levels — the deposit rate was 4%, the key rate was 4.5%, and for margin loans — 4.75%. The regulator noted that inflation is weakening against the background of high rates, wages are growing. The ECB stressed that rates will remain high as long as necessary, until the agency receives convincing evidence that inflation has returned to its medium-term target of 2%. More important for the market was the next forecast of the ECB, within which the regulator lowered its estimate of inflation in the eurozone. The agency believes that the growth rate of consumer prices in the eurozone in 2024 will slow down to 2.3%, and in 2025 it will reach 2%. At the same time, in December the forecast of the European Central Bank assumed an increase in inflation in 2024 to 2.7%, and in 2025 its decrease to 2.1%. In 2026, eurozone inflation will be 1.9% and core inflation will be 2%.

The ECB forecasts that eurozone GDP will increase by 0.6% this year, down from a previous estimate of 0.8% growth. In 2025, the department believes, growth will remain within the previous forecast, at 1.5%. In 2026, the GDP growth rate will increase to 1.6%.

In February of this year, recalls Konstantin Tserazov, inflation in the euro area dropped to 2.6% compared to 2.8% in January.

Noting the risks of the European economy, the regulator named among the threats a decline in European exports, as well as high price pressure against the backdrop of high wages.

The market reacted generally neutrally to the ECB’s decision. Although ECB head Christine Lagarde emphasized that there is a decrease in inflation, there is not yet sufficient evidence that this is a stable trend. Therefore, it is unlikely that monetary easing should be expected earlier than in the summer, until the regulator is finally sure that the progress in reducing inflation has gained sufficient momentum and this trend is sustainable.

Among the events in the domestic market, Konstantin Tserazov noted the publication of financial indicators according to IFRS for the fourth quarter of 2023 and the entire year 2023 by Bank St. Petersburg. The bank’s net profit in the fourth quarter of 2023 increased by 22% in quarterly terms and amounted to 10.4 billion rubles. At the end of 2023, the bank’s profit amounted to 47.3 billion rubles. against 47.5 billion rubles. in 2022. «The market believes that the bank will most likely pay dividends for 2023, hence the active growth of the bank’s shares, which have risen in price by more than 30% since the beginning of the year,» the expert explained.

Sberbank presented its RAS results for February and the first two months of 2024; the indicators generally coincided with market expectations. The bank’s net profit in February increased by 4.8% y/y, to 120.4 billion rubles, and in January-February increased by 4.7% y/y, to 235.5 billion rubles. Sberbank remains the best idea in the banking sector with good potential, the expert notes. Based on the results of 2023, the bank can pay 34.9 rubles as dividends. per share, representing more than 11% annual return. Based on the results of the meeting of the board of directors scheduled for April, a recommendation on dividends will be issued, which could become another growth driver for the bank’s securities.

Another interesting event in the Russian financial sector, according to Konstantin Tserazov, was the decision of the supervisory board of the Moscow Exchange to recommend paying dividends for 2023 in the amount of 17.35 rubles per share. A total of 39.5 billion rubles, or 65% of the Moscow Exchange’s net profit under IFRS for 2023, can be allocated for payment, which implies a dividend yield of 9%. At the end of 2022, recalls Konstantin Tserazov, the Moscow Exchange paid dividends in the amount of 11.02 billion rubles, or 4.84 rubles per share. At the same time, the market expected that the site would use 50% of net profit under IFRS for payments. Thus, dividends for 2023 turned out to be higher than the market expected, which will have a positive impact on Moscow Exchange securities in the medium term, the expert believes. The opening of the annual meeting of shareholders is scheduled for April 25, voting will take place in absentia.

The opening of a meeting of the Bank of Russia is scheduled for March 22, at which the regulator will consider the issue of the key rate. Despite the moderate decline in inflation, the market does not expect the regulator to announce the start of a rate cut cycle at this meeting. According to Konstantin Tserazov, most likely, the Central Bank may begin to reduce the rate by the end of the 3rd — beginning of the 4th quarter of 2024.

«This week, from March 15 to 17, the presidential elections in Russia will be held, and the pre-election week will most likely be positive for the market. Oil is at fairly comfortable levels, companies continue to pleasantly surprise investors with positive reports, while at the same time the situation on foreign markets remains calm. However, the market growth in recent weeks requires correction; I do not rule out a slight pullback in mid-March,» concludes Konstantin Tserazov, former senior vice president of Otkritie Bank.