Oil rules the market

February was another highly volatile month for stock markets, and Russia was no exception. Oil prices are generally a bellwether, with the Russian stock market tracking them up and down. It is mainly the big stocks that have moved, and these movements have been very substantial. Fredrik Colliander, who manages the Carnegie Rysslandsfond fund, comments on the Russian market.

The low oil prices are an acute threat to the Russian government budget. Authorities are now trying various initiatives to increase revenue, and in mid-February the finance ministry launched a proposal to increase taxes on oil companies. The argument is that the budget, due to the progressive structure of oil taxation, has lost a disproportionate amount of revenue compared to oil companies, which have benefited from ruble devaluation.

The proposal is to revise the formula for mineral extraction taxes to raise an additional 12 billion from oil companies. This is unlikely to be popular with the oil companies, so we can expect intense resistance.

Another way to increase budget revenues is to accelerate privatisation. The Vedomosti newspaper reported that everything is ready for the privatisation of Sovcomflot, Aeroflot, Rostelecom, Transneft and Rosneft, and that the president will soon take a decision. First in line, however, seems to be Bashneft. Lukoil has already declared itself willing to buy the government’s stake in the company, but it is important for Lukoil to have a majority. If Lukoil bought 50 percent of Bashneft at market price, the government would receive USD 2.5 billion. This would be a very good start to the privatisation wave.

Software developer Luxoft, in which the fund has a position, issued results that were slightly weaker than expected, and its shares fell.

The dividend yield on the Russian market has been high in recent years, but is now declining due to the lower commodity prices. Investment bank VTB estimates that the dividend yield on the RTS index will be 3.1 percent this year.

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Carnegie Rysslandsfond invests in equities listed in Russia and in other parts of the former Sovjet Union. The region has great natural resources as well as many excitingcompanies in newer...

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