The Russian stock market, which experienced a real bloodbath at the beginning of the week, on Wednesday began to show signs of recovery. But stock analysts interviewed by Izvestia advise private investors not to rush into buying, pointing out that after such a massive drop in quotations, they will have enough time to join the growth of the market recovering to its previous values.
Sailed away to a safe harbor
According to the results of the main trading session on Wednesday, the Moscow Exchange index rose by 3.24% compared to the previous close – up to 3436 points. Among the growth leaders were the shares of Norilsk Nickel, Polymetal, the Moscow Exchange itself, as well as Gazprom and the MMK metallurgical plant – they all added from 5.4 to 6.6% (as of 17:20 Moscow time).
However market analysts interviewed by Izvestia unanimously recommend that private investors wait for a better moment to enter Russian assets — at least until the current foreign policy conflict between Russia and Western countries flows into a calmer phase.
The interlocutors of the publication explain the record drop in the market since the beginning of the pandemic primarily by the sale of assets by foreign investment funds. This has nothing to do with the panic among private investors: the total amount of Russian assets they hold in their portfolios is comparable to sales in at most one of the companies on the list of blue chips. But this does not mean at all that foreign investment funds are 100% likely to expect the outbreak of a full-scale war between Russia and Ukraine.
— It will be difficult for a foreign fund manager to explain to his investors why he continued to hold Russian shares against the background of the “new cold war” and “the bottom of relations between Russia and the West since the Caribbean crisis,” – notes the author of the Telegram channel on investment topics of the Russian Far East. – He does not want to risk his career for the sake of a higher dividend yield on Russian shares than, say, in Brazil comparable to the Russian Federation. A Western fund will sell if the probability of war is not 0%, but, say, already 20-30%.
Wherein quotes for the morning of Wednesday 19 January, according to the head of the information and analytical content department of BCS World of Investments Vasily Karpunin, already looked as if market participants had included the most negative scenarios in the price. And the effect of margin calls only increased the scale of the fall.
The head of the investment analytics department at Tinkoff Investments, Kirill Komarov, in turn, notes that foreign investment funds are more likely to wait not for the hot phase of the military conflict, but doubt the likelihood of its quick settlement even in the state it is in now. Therefore, in accordance with their investment declarations or decision protocols, they wait out the period of turbulence in safer assets.
Not the bottom yet
It is important for a private investor to understand that the current jumps in quotes on the Russian market in any direction, first of all, signal the general volatility in the market. Therefore, the rebound of quotes that occurred on Wednesday should by no means be taken as a signal to take a position.
— There will be no immediate recovery of the market, except for a small rebound, then a decline again, depending on the news background, or lateral movement, – the founder of the “School of Practical Investing” Fyodor Sidorov is sure.
The interlocutor of Izvestia adds that Now it is very dangerous for individuals to try to acquire anything on the stock market, since the situation in the world and on trading floors is too unpredictable. The only exception, he believes, may be the addition of stocks with high dividend yields to the investment portfolio after some stabilization of the domestic market. You may also be interested in short-term bonds with a maturity date within the next two to three years.
But if we proceed from the assumption that a full-scale war will not happen, then the Russian market now looks oversold. Based on this assumption, it is self-evident that future recovery growth in assets could bring significant returns to private investors, multiples of ruble inflation, even if it turns out to be higher this year than last year. The main question is what moment is considered the safest “entry point”.
Doesn’t bounce right away
All analysts interviewed by Izvestia believe that after the normalization of the foreign policy conflict, private investors will have enough time to qualitatively assess all the risks and move on to making purchases. They will receive the desired benefit even if they miss the very beginning of asset growth.
“Timing, of course, plays a key role, and it is quite difficult to predict the development of events and the mood of individual large investors who, by their actions, can turn the market around,” says Kirill Komarov. Don’t expect instant recovery. For instance, after similar events for the Russian market in April 2018, recovery took about three months, including generous dividends.
The interlocutor of Izvestia from the Russian Far East adds that the absence of a hot war does not mean the removal of tensions in relations, after all, the confrontation in the spirit of the Cold War also does not cause a desire to buy.
— But if Russia and the West still agree, then yes, Russian stocks will recover. And, perhaps, quickly, in a couple of months. For against the global background, Russian stocks are cheap – 5-6 P / E, and not 15-20x, like Western ones, and actually anti-inflationary – we have a lot of public commodity companies on the market.
As for specific sectors, according to Vasily Karpunin from BCS World of Investments, the strongest movement can be realized as the most fallen blue chips, for example, Sberbank, TCS Group, Moscow Exchange, and papers of exporters, which are less associated with geopolitical risks.
– In particular, these are shares of oil companies and metallurgists. They all benefit from the relative weakness of the ruble,” explains Karpunin.
Kirill Komarov agrees that banks, as the industry most affected by these events, look promising. In addition, tactically, the shares of commodity companies, primarily oil companies, may look stable against the backdrop of high oil prices, but strategically they are less promising than banks and technology companies.
Fedor Sidorov believes that in conditions when any assets can be subject to a fall, and inflation in the world is at record levels, it is worth considering the shares of metallurgical, mining companies and companies operating in the precious metals sector.
— Last year, the share price showed a significant increase, and they also brought a good dividend yield. At the moment, the predicted dividend yield on the shares of Severstal, MMK and NLMK is in the region of 19% per annum, the shares of Raspadskaya and Mechel-ap are about 21% per annum, Alrosa is 13.5%, – summed up the interlocutor “Izvestia”.
Analyst opinions expressed in this material do not constitute individual investment advice (IIR).
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