Research Notes

All summer long, the Russian equity market soared at record-breaking levels. This trend was largely attributable to favorable macroeconomic statistics in Russia, sky-high petroleum prices and interest in emerging stock markets on the part of foreign investors. However, overly upbeat sentiment of market participants made continuation of the positive trend improbable for all sectors of the Russian market.

We therefore believe that upside potential for the Oil&Gas sector has played itself out until year-end. According to our estimates, benchmark RTS, driven by raw material producers, should hover around 905 by the end of December, which is not far from the current level. Nevertheless, the present situation leaves no lack of valid equity plays, since promising sectors and companies with unrealized growth potential remain untapped.

In our opinion, power companies, telecom companies and also chemical and petrochemical industries hold the strongest upside prospects. We view promising securities in these sectors and recommend allocating from 35% to 80% of investment portfolios to these shares, depending on specific risk tolerance. We believe that second-tiers are most promising and increase the share of low-liquidity stocks in our portfolio compared to the structure of the previous portfolio.

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