Russian Trading System Stock Exchange (RTS) 30/04/2012 - 04/05/2012 (week 18)

Week 18 was exceptional not only because investors were able to trade only 3 days due to technical difficulties, but also because the RTS Index dropped severely by 6.02%. The week started with the index jumping by 1% in the morning, however, since then the trend was clearly downwards and Wednesday ended with RTS index being down by 1.57%. Thursday was relatively calm and no drastic drops in stock prices were present. The day ended with negative growth of 2.42%. Unfortunately for stock owners, Friday was marked by a massive drop in stock prices and when the trading day finished, investors could see an enormous weekly drop in RTS Index of 6.02%. Such a massive drop could be explained by much negative economic news all around the World. However, the index was mostly affected by news and events in Russia itself. Uncertainty in upcoming government change as well as negative corporate news from Russia added to a drop in stock prices. Moreover, since Russia relies heavily on oil exports, decrease in this commoditys price negatively affected sentiments in the market as well.

RTS Index (RTSI) change during week 18; Source: http://www.tikr.ru/

Second week in a row all companies that are listed in iGame saw their share prices decreasing. The biggest drop was recorded by RusHydro (HYDRS), JSC Severstal (CHMFS) and JSC VTB Bank (VTBRS), whose prices dropped by 10.14%, 6.59% and 6.13% respectively. The following analysis includes already mentioned RusHydro (HYDRS) and Sberbank, Common (SBERS), which stock prices plummeted by 2.63%.

General downtrend had the biggest impact on RusHydro (HYDRS), largest Russian hydroelectricity company. The stock price dipped staggering 10.14%during the week, contributing to one of the worst slumps over the past years. The influence must have come from the general market as people are worried that the global economy may be slowing. Even though the company performed well and increased its electricity production in the first quarter of 2012, the overall result was grey due to diminished revenues (especially EBITDA, -28%) compared with the same period in 2011. After all, RusHydro managed to get away with a small increase in Q1 profits. At the moment, situation seems to be unstable. Players in the market should and will continue to rely on major trend movements in the nearest future.

RusHydro (HYDRS) price index change during week 18; Source: http://www.tikr.ru/

The week turned out to be rather predictable (meaning that indexs fluctuations ideally repeated market movements) for the least loser of the week Sberbank (SBERS) which performed a 2.92 % decrease in share price. It is quite uncommon to speculate why share price decreased so little instead of so much, although global circumstances enforce to pick the latter. Sberbank announced Q1 result for 2012 at the beginning of the last month and the results were striking: net interest income rose by 27 % compared to the same period last year and net fee and commission income was up 22.7 % year-on-year. Furthermore, pretax profits were almost 20% higher than in the corresponding period last year. Significant performance kept Sberbanks share price on top last month, although unfavourable macroeconomic conditions made index to sheer. The other reason why share price did not fall that much during this week might be rumours considering Q2s results which are expected to be even better than the previous quarters. If global situation would stabilize next week it is likely that share price will go up.

Sberbank (SBERS) price index change during week 18; Source: http://www.tikr.ru/

Conclusion: As mentioned in last weeks market overview, the trend in the RTS Index is clearly downwards. Nothing has changed so far and as we have predicted, expected drop in oil price and uncertainty due to government change affected market negatively. There are more reasons to believe that the trend will continue until the government change than to believe otherwise. Only after that and clear statements about economic policy and reforms by the new government the trend might change.