Tougher demands on Norilsk?

Oil prices fell unexpectedly sharply in December. The OPEC statement early in the month led to a sell-off of oil. The previously strong Russian stock market was dragged down by the lower prices. As usual, the ruble also fell sharply. In SEK, the Russian stock market lost 14% in December, writes Carnegie Rysslandsfond’s manager Fredrik Colliander.

Over the past year, Russia has been forced to adapt to a 55% decline in oil prices, and this has gone better than expected. GDP has fallen by “only” about 3.7%, and inflation looks set to be around 13%. Reduced domestic demand and the lower ruble have also helped the surplus in the balance of payments to actually increase, to almost USD 60 billion.

There was plenty of company activity during the month. Norilsk Nickel announced it is selling its entire holding in InterRao for USD 153 million. Although expected, this is still positive for both companies. The Federal Agency for State Property Management suggested that Transneft will bring in additional capital by issuing more preference shares in the market. We welcome this since the success of an issue will require the company to open up and respond to market demands.

The Russian Central Bank set its exchange rate at the end of December to 72.88 rubles per dollar. This rate will be used by Russian companies to calculate currency gains for the year. We can therefore calculate that Surgutneftegaz will make further huge foreign exchange gains, and the dividend yield on preference shares at the current price will exceed 16%.

Magnit released a very weak trading update in December. Sales growth is now at historically low levels. We see this as further proof that the Russian consumer is bearing the brunt of this recession.
It is rumoured that former finance minister Alexei Kudrin is heading back into government. During his mandate, Kudrin gained a reputation as a reformer and a very able administrator. A spokesman for the president confirmed that talks are being held, but that no agreement has been reached. If Kudrin does re-join the government, this would be very positive for the market.

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