RMG - Weekly, Jun 3, 2013, MACRO INDICATORS AND POLITICS.
STORIES TO WATCH
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We temporarily change our market outlook to Neutral (from Positive) after the steep fall by Russian shares last week. The RTS lost 4.1% w-o-w and the MICEX 2.2% (the difference reflects ruble decline by 1.6% to 32/$). However, trading volumes remained relatively low.
Russia was kept company last week by Brazil, where the BOVESPA lost 5.1% and the local currency fell by 4.4% w-o-w. Brazil and Russia are both highly dependent on commodity prices, but they were little changed last week (metals rose, except steel, while oil lost 2.2%). We think that depreciation of the local currencies could have been the main cause of the market falls.
US markets stayed volatile as effective Treasury yields fell to their lowest level in the decade, almost equaling CPI. The S&P slipped 1.1% w-o-w and bond yields made appreciable gains (10-year Treasuries lost 10bps). But US shares could still move higher as investors continue turning from low-yield bonds to higher-yield shares. In that case global investors may continue to prefer US and other DM share markets to the EM alternatives.
Further decline of the ruble is possible, and until then foreign investors will unlikely buy Russian shares. Fundamentally, the year-to-date deficit of the federal budget suggests the ruble could fall to R33-35/$ (in order to balance out revenues and expenses). As per short-term trend, the ruble may decline to 32.5/$ (resistance level). We suppose to restore our Positive market outlook as soon as fall of the ruble stops.
Rye, Man & Gor Securities
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