"Russian Trading System" Stock Exchange (RTS) 19/03/2012 23/03/2012
During week 12 the Russian market showed a significant negative trend. The main index RTSI dropped by 4.24% (from 1748.32 to 1674.25); RTS Oil & Gas Index (RTSOG) performed even worse with a decrease of 5.54% (from 227.90 to 215.38 points). Similar trends were observed also in other indexes. It can be partially explained by the fact that the Russian government plans to increase the minimum reserve requirement for commercial banks: the new figure is estimated to be 1 billion RUR (around 26 mln EUR; the current number is 180 mln RUR (4.6 mln EUR)). This means that some of the existing banks will have an increase in volatility if they do not have enough reserves right now, despite the fact that the minimum reserve requirement has not been officially raised yet. Moreover, the financial market was made more unstable by the decision of the Russian Central Bank to increase interest rates; however, this increase had been expected before. As a result, the RTS Financial Index (RTSFN) decreased by 3.59% (from 334.23 to 322.24 points) during the previous week. Week 12 has been the worst week in the RTS so far this year. All companies which are traded in the investment game12, lost their share values. Among the biggest losers were Surgutneftegas (SNGSS), with common shares down 8.26%, GMK Norilskiy Nikel (GMKNS) lost 7.84%, and JSC VTB Bank (VTBRS) recorded a decrease of 7.27%. This weeks best performers: RusHydro (HYDRS) -1.15%, Sberbank (SBERS), common shares -2.64% and JSC Severstal (CHMFS) -3.63%. JSC Severstal (CHMFS) The market movements of this international steel producer are worth watching in the weeks ahead. Although Chinas economy is slowing down, and Chinese government is not planning to ease restrictions on real estate sector; iron and steel industry should remain stable or even improve in the second quarter. A considerable number of construction processes are being resumed due to warmer weather. The slower growth of China will most likely expand its demand for iron, and steel prices will still remain high at around 109.32 Euros. Moreover, some positive signals are appearing in the Russian market. Improvements are expected in the construction industry in Russia, as the Government plans to invest 282 billion Euros by 2015 in construction of 4 new nuclear power plants. Thus, the demand for iron will definitely go up in the domestic market. Severstal revenues have been growing steadily from 2010 Q4 till 2011 Q3 (the latest Q available). In addition, Severstal has been able to keep their net profit margins higher (Q1 14.25%; Q2 14.66%; Q3 9.44% in 2011) than the average margins in basic material sector and iron and steel industry: 11.58% and 5.10% respectively. Companys next earnings announcement is going to be on April 19.
The most recent downwards trend started in the middle of February and now the share price is close to the support line. In addition, RSI and the Stochastic Oscillator show low levels and signals that Severstal shares are oversold, and during the next week its share price should increase. Surgutneftegaz (SNGSS) Last week the value of Surgutneftegaz common shares dropped by 8.26%, from 32.700 at the start of the week to 30.000 when closing on Friday. This is quite a big contrast to the previous week when the share value peaked at 33.525 and also comparing with the 19.91% increase in share price over the last three months.
However, this is something that can be seen also in the previous months, where it recovered similarly after a plummet in share prices back in August 2011, only to drop again in December 2011, making the share quite volatile.
If one were to look at the preferred share of Surgutneftegaz (SNGSPS), you could see a very similar trend. SNGSPS usually drops in late March or early April; however, the share is far less liquid than the common share, but it is still available for trading in the game. In fact, currently it appears to have peaked, so keep an eye on the share next week. Toms Andersons, Uldis Boldans, Einars Garoza, Darya Skakouskaya
