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  • Idea: Russian Presidential Rally

    At march 2012 we will get name of next (one of previous) President of Russia. It seems to me everybody already know his name, at least guess it. I don't wanna discuss his pros and cons, it is not my business, I ain't political analyst. So anyways President's election will happen and we are waiting for "Presidential rally" at Russian Equity market as ordinary reaction on this event.


    Let's take a good look at newest history. At first time, when Mr. Putin won this excited battle Russian Equity Market rose more than 200%. At the second Putin's election MICEX:IND jumped almost 50%. Next time during Mr. Medvedev's Presidential Election was flat because financial crisis happened at that time. But it did not fall. On average base market rose 75% during "Presidential" rally. We are tended to expect bull market during following five or six months.

    Additionally, "in 2007 many Russians became shareholders of VneshTorgBank (Bank VTBR:RU) on IPO. They bought it 0.13 rubles apiece. Current price is 0.07.

    To return back confidence of future President (Mr. Putin, as you guess it) need to pull it back to 0.13 ruble/share at least.  It's a political reason and he has enough numbers of tools to do that, including verbal and administrative" - as Andy Chams, strategist of Vitus Investment said.

    So, Gentlemen, it's good time to increase RSX exposition in your portfolios for a nearest five months.

    Tags: RSX, ERUS
    Oct 26 7:11 AM | Link | Comment!
  • Russian Government privatization plans may lift market to the new highs.
    I don't envy short-sellers in Russia.

    Currently the budget deficit in Russian Federation is equal 911 bln of Rubles in jan-nov (~$29 bln, wich approximately are equal 10% of GDP), as Russian Ministry of Finance reports. And its value will increase, as Authority expects. Also there are few way to cover budget deficit (there listed in Government's plan). There are:
    • tax increases,
    • borrowing (issue bonds at 1 trillion Rubles),
    • privatization (sell property at 1 trillion Rubles or more).
    Early, at November, the Russian government has approved a privatization plan for sale of federal property in 2011-2013. As it expected, revenue of this sell-off could yield 1 trillion Rubles.
    MOSCOW, November 17 (RIA Novosti)
    The government hopes to get most of the privatization revenues from the sale of shares in ten major state-owned banks and companies. All decisions on the sale of these companies have been confirmed, Nabiullina said.
    The list of privatizations includes the sale of shares in oil major Rosneft (RNGZY.PK, 25 percent minus one share), RusHydro hydropower generator (7.97 percent minus one share), the Federal Grid Company of Unified Energy System (4.11 percent minus one share), the country's largest shipping company Sovcomflot (50 percent minus one share), Russia's top bank Sberbank (7.58 percent minus one share), the country's second largest lender VTB bank (35.5 percent minus one share), the United Grain Company (100 percent by 2012), Rosagroleasing agricultural leasing company (50 percent minus one share from 2013), the country's rail monopoly Russian Railways (25 percent minus one share from 2013) and Russian Agricultural Bank (25 percent minus one share by 2015), Nabiullina said.
    So ... Goals are obvious: "The government hopes to get most of the privatization revenues". This may mean that tax pressure increases will be delayed for a time, likely, at the first. At the second, Government need to put the stock's price on highest level. It's normal practices of initial offering. They gotta give some positive to markets.

    Roadshow started, didn't it?
    (the greatest Roadshow since 2008)
    At  Dec 9, 2010 reuters writes
    Russia's largest oil producer, privatization target Rosneft (OTC:RNGZY), is around three times undervalued when compared to international peers, Deputy Prime Minister Igor Sechin said on Thursday.
    "We think Rosenft is undervalued. Compare the structure of Rosneft's reserves and those of (Brazil's) Petrobas (PBR), for example. Rosneft is undervalued by around three times," Sechin told reporters.
    And
    As interfax reports At Dec 9. 
    ROSNEFT CHIEF UPS STAKE IN COMPANY FROM 0.0028% TO 0.0051%
    Also
    Alexey Miller's column
    Gazprom is becoming ever more valuable, which is clearly evidenced by the fact that the Company's share value steadily goes up. The Company's capitalization has increased by nearly 35 per cent since the most recent Gazprom Shareholders Meeting.
    The global economy is reviving, investors' confidence is growing. By purchasing Gazprom shares, the investors once again cast their vote for the course we have shaped for the Company's comprehensive development on a global scale, they invest funds in the most promising securities putting their trust in the future.
    I have no doubt that Gazprom's capitalization will not only reach the pre-crisis level, but go up to its fair value. I give a buy recommendation!
    Local TV shows following commercials (or similar, Enjoy, this isn't as boring as commercials of Shell, ExxonMobil, etc)

    And more one funny fact: earler, at may, "German Gref, the head of Sberbank, Russia's biggest lender, became a shareholder in the firm for the first time after buying a 0.000004 percent stake worth $2,500, the bank said on Monday." //reuters

    to be continued ... (?)


    So, when you and authority banded together, you have significantly greater chances for success. Of course it may seem unconvincing for someone, but look it this way: you buy stocks and Government care about the market growth, 'cause they are interested in higher prices, at least till the sell-off.

    In fact, Russian stocks are undervalued on comparing to international peers (even taking into account the country risk premium). And this Government media propaganda is able to lift market higher. This is a powerful support for equity prices, for a time. Any way, I don't envy short-sellers.

    Russian Stock Pick

    Dec 15 7:04 PM | Link | Comment!
  • ETF Overview: Risk Premiums for Some Countries
    "RUSSIAN RTS INDEX $ ( RTSI$:IND priced in USD)" trades at eight times earning, meanwhile S&P500 has 14.891 (approximately 13-14 P/E for next year). Assume that US Equity market is correctly priced. So, based on the comparative P/E ratio we conclude that investors agree to pay only 54 cents for one dollar of profit. Is it normal? Let's estimate risk premium for some countries.

    Country Risk Premiums.

    First of all we estimate equity risk premium (for US market). Assume that risk premium is 4.67% and expected rate of return on equity is equal 7.51% (free risk "plus" risk premium). [see details and "Implied Equity & Country Risk Premium weekly report"]

    At the second we need to estimate country risk premiums. There are many approaches to estimate Country Risk Premium. We use following ones: approach based on Moody's Long-Term Credit Rating, based upon AAA-JPM CEMBI yield spread market volatility adjusted and upon the CDS-rates volatility adjusted. [see details]

    Finally we compute required rates of return for some countries (as sum of American equity risk premium and country risk). Results see in following table.



    What does it means? (Instead conclusion)

    Actual current P/E for S&P500 (SPY) is equal 14.891 times earning. Expecting P/E is 13.32. Its very close to some forecasts. Russia (RBL) has 8.22 current and 8.13 estimated P/E. It's close to actual ratio too. In other words 55 cents for one dollar of current profit in Russia is normal. Also Hong Kong trades near its P/E estimation.

    Following our results, required rates of return on equity are 12.48, 11.61 and 11.5 for Brazil (EWZ, BRF), China (GXCFXI, PGJ) and India (INDY, INP,PIN, EPI) respectively. Current earn-prices marks are equal 8.02, 6.85 and 5.74. So Brazilian, Chinese and Indian companies should increase their profit. The expecting GDP's growth looks like the great opportunity for companies from these countries to demonstrate the rising of their earning. Otherwise if they will not use it Investors will be very disappointed (it looks very risky). In a nutshell there are no significant upside potential and very weak downside protection at this moment.

    Russian Stock Pick
    Disclosure: closely watching RSX, SPY, RBL, EWH
    Nov 28 11:46 PM | Link | Comment!
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