Weaker ruble means change in share investment opportunities - Troika Dialog
MOSCOW. May 14 (Interfax) - A weaker ruble means a new review of investment opportunities on the Russian market, analysts at Troika Dialog investment company say.
Over the past two weeks the ruble has slid amid reduced global interest in risk, a drop in oil prices, delays with the introduction of Euroclear system settlements in Russia, anticipated inflation growth in the next few months, opposition rallies in Moscow and the approach of Russia's accession to the WTO. Amid changes to ruble exchange rate dynamics, we see the need to review our strategy on the Russian stock market, Troika Dialog said in a report.
The weakening of the ruble will support ruble revenue for oil exports if prices fall, keeping profit levels about the same as before and this will also have a good impact on profits for all export-oriented companies. The advantage will also be felt by processing and food industry companies aimed at the domestic market as well as agriculture as similar imports will go up in price in ruble terms.
However, a ruble slide will have a negative impact on capital inflow, which is one of the factors that leads to higher inflation in Russia because it makes imports, which Russia quite strongly depends on, more expensive.
Ruble decline can also increase pressure on interest rates and lead to a ruble deficit, which would lead to reduced profit for banks and real estate sector companies.
A floating ruble exchange rate can balance the situation and after exchange rates have stabilized the Russian economy can find a new balance amid different ruble exchange rates. In the transition period money can be made from changes in exchange rates, the report says.
The analysts reckon the best shares in view of ruble decline are those that have lagged behind the market since the start of the year.
A weaker national currency may have a positive impact on Russian gold mining companies. It will also probably have rather a positive effect on fertilizer producers - especially Uralkali , PhosAgro and Acron . Other shares that may be influenced in a positive way are metal producers such as Norilsk Nickel and Rusal, as well as export-oriented steel producers with their own raw materials base (such as Novolipetsk Steel ) and electricity exporters (OJSC Inter RAO UES , OJSC TGK-1 , that is companies where exports account for at least 10% of revenue), the report says.
Food manufacturers and other companies such as Pipe Metallurgical Company may also improve their position due to a weaker ruble.
The slide in the national currency will have a positive impact on all oil and gas company shares, including Transneft preferred shares. A less expensive ruble will not just positively influence profit and loss indicators but capital investment, which is denominated in rubles. Companies with a large dollar position, such as Surgutneftegas will see a positive impact, while companies with a large volume of dollar debt, such as Vimpelcom, will feel a negative impact.