Rus­sia sales out­look worst in BRIC mar­kets on oil, re­ces­sion

The Pak Banker - - BUSINESS -

Rus­sia is the stand­out these days among the big­gest emerg­ing mar­kets, but for all the wrong rea­sons. Be­set by the coun­try's first re­ces­sion since 2009, oil selling at half its five-year av­er­age price and in­ter­na­tional sanc­tions linked to the Ukraine con­flict, Rus­sian com­pa­nies are poised to post the big­gest drop in sales among the four so-called BRIC na­tions, data com­piled by Bloomberg show. Two of the oth­ers, Brazil and In­dia, also are pro­jected to slump, while China is seen grow­ing mod­estly.

The 50 com­pa­nies



the bench­mark Micex In­dex will post an av­er­age 17 per­cent ru­ble-de­nom­i­nated rev­enue de­cline in the next 12 months, ac­cord­ing to an­a­lysts' es­ti­mates. In dol­lar terms, the forecast is for a 25 per­cent slump. Sales for com­pa­nies on the Stan­dard & Poor's 500 In­dex, the bench­mark for U.S. eq­ui­ties, are pro­jected to in­crease 2.5 per­cent.

Rus­sia's gross do­mes­tic prod­uct is con­tract­ing as a slide in energy prices and sanc­tions in­clud­ing in­ter­na­tional fi­nanc­ing re­stric­tions ham­mered the ru­ble and shook an econ­omy that re­lies on oil and gas for about half its gov­ern­ment bud­get rev­enue. An­a­lysts have been widen­ing their es­ti­mates for this year's GDP slump and don't see growth re­sum­ing un­til the sec­ond quar­ter of 2016.

"You fac­tor in a plunge in oil, a rout in the ru­ble and a de­te­ri­o­rat­ing macroe­co­nomic sit­u­a­tion, and you see that there are not too many rea­sons to be op­ti­mistic," Paul Christo­pher, the St. Louis-based Chief In­ter­na­tional In­vest­ment Strate­gist at Wells Fargo In­vest­ment In­sti­tute, which over­sees $1.7 tril­lion, said by phone. "This is what hap­pens when the econ­omy is built around oil."

The econ­omy of the world's largest energy ex­porter, which ex­panded an av­er­age 5.6 per­cent dur­ing the first decade of the 2000s, will prob­a­bly con­tract 3.6 per­cent this year and grow just 0.5 per­cent in 2016, ac­cord­ing to the av­er­age of 40 an­a­lyst es­ti­mates com­piled by Bloomberg. Rus­sia's ru­ble is once again the worst per­former in emerg­ing mar­kets, weak­en­ing 23 per­cent in the past three months af­ter the best per­for­mance among ma­jor cur­ren­cies ear­lier this year.

Plung­ing com­mod­ity prices, a stronger dol­lar and China's eco­nomic slow­down have crimped growth through­out de­vel­op­ing na­tions. Brazil­ian as­sets have slumped amid a gov­ern­ment cor­rup­tion probe, im­peach­ment spec­ula- tion and a sov­er­eign rat­ing cut. In China, pol­icy mak­ers de­val­ued the cur­rency last week in the latest move to try to boost the slow­est eco­nomic growth in 25 years. In In­dia, pres­sure has been mount­ing to ac­cel­er­ate fis­cal and reg­u­la­tory re­forms that Prime Min­is­ter Naren­dra Modi has strug­gled to im­ple­ment. "Rus­sia seems to be hit the hard­est," Wells Fargo's Christo­pher said. "Nowhere else do you see this com­bi­na­tion of an oil rout, a de­cline in the ru­ble and re­stric­tions on ex­ter­nal fi­nanc­ing."

An­a­lysts ex­pect sales to slump 15 per­cent among com­pa­nies in Brazil's Ibovespa In­dex over the next 12 months in lo­cal cur- rency terms. In­dian com­pa­nies' sales are seen drop­ping 1.8 per­cent. Shang­hai Com­pos­ite In­dex mem­bers are pro­jected to post a 2.3 per­cent in­crease. The Micex In­dex will re­turn 13 per­cent over the next year, ac­cord­ing to an­a­lysts sur­veyed by Bloomberg. They forecast a 31 per­cent 12month gain in Jan­uary. The Micex rose 1.3 per­cent last week, widen­ing its ad­vance in 2015 to 23 per­cent. The ad­vance pushed the gauge's 14-day rel­a­tive strength in­dex to 66, near the level of 70 that some tech­ni­cal an­a­lysts see as a sig­nal a drop is im­mi­nent. The Bloomberg Rus­sia-US Eq­uity In­dex added 0.9 per­cent in its first weekly gain since mid-July.

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