MOSCOW/PARIS Aug 26 Shell-shocked investors in
Russia, where the key stock index has lost a third of its value
in just three months, are hoping for a boost from a batch of
earnings due from oil, steel, retail and telecoms companies.
"At some point, despite persistent tensions related to the
international crisis of credit or geopolitics, investors may be
tempted to return to the Russian market to take advantage of its
low valuation," said Nina de Martinis, who focuses on Russia and
emerging Europe at Credit Agricole Asset Management.
"The catalyst could be the publication of good quarterly
performances by Russian companies in the coming months, with
prospects for profit growth among the strongest in the region
and within emerging markets," she said.
In the first taste of this year's second-quarter reports,
Russian companies have shown profit growth of between 23 and 75
percent. Consumer-facing stocks in particular, such as mobile
operator MTS (MBT.N) and food store chain Magnit (MGNT.MM), have
beaten forecasts. [ID:nLQ442078]
The benchmark RTS index .IRTS has fallen nearly 38 percent
from its May 19 record, as a global selloff in emerging market
stocks coincided with an unexpected government attack on coal
company Mechel's (MTL.N) pricing policy and with war in Georgia
over breakaway South Ossetia.
As a result, Russia has been the worst performer among
emerging markets this quarter and will struggle to feel the
benefits of positive corporate news.
"If you took all of these companies and put them in any
country other than Russia, they would be a whole lot higher," a
Moscow-based fund manager said. "They (investors) like the
companies but they don't like the country."
CONDITIONS FOR BOUNCE
But some market watchers say conditions exist for a market
Many investors, nursing large losses from July, have opened
speculative short positions in an effort to profit from the
downtrend, and are unlikely to wait if companies surprise on the
"The shorts will pull the trigger if (companies) beat
forecasts by one kopeck," Renaissance Capital equity strategist
David Aserkoff said.
Aserkoff said investors would be watching in particular to
see how well Russian companies cope with rampant inflation, with
consumer prices rising an annualised 14.7 percent in July.
Magnit showed more than 90 percent growth in earnings before
interest, taxes, depreciation and amortisaion on revenue growth
of 50 percent, as the company drove a hard bargain with its
suppliers and promoted value-added products in its shops.
Magnit and its peer X5 (PJPq.L), which is due to report on
Thursday, may indirectly benefit from high inflation as shoppers
switch to their "economy class" shops from more expensive -- and
mostly unlisted -- luxury chains, analysts said.
New York listed juice and dairy company Wimm Bill Dann
WBD.N and MTS peer Vimpelcom VIP.N also report on Thursday.
Renaissance Capital recommended investors buy LUKOIL
(LKOH.MM), trading at a 37 percent discount to peers on a 2008
price/earnings basis, in the run-up to to its Friday earnings
release. Its closest peer Rosneft (ROSN.MM) reports on Monday.
"We believe the past quarter was the most profitable in the
history of the Russian oil industry, driven by record-high
upstream and refining margins," Renaissance Capital said.
Credit Agricole's de Martinis said Russian energy companies'
market valuations failed to fully reflect oil prices, even in
the light of recent declines from mid-year peaks.
"These securities price a barrel of crude at $60 to $80
dollars, well below current and the average for the year, which
is close to $115 barrel," she said.
(Additional reporting by Maria Plis; Writing by Melissa Akin;
Editing by David Holmes)