Consumer stocks are seen contributing to an expected rise of just over 14 percent in Russia's dollar-denominated RTS index by the end of 2013 to take it to 1,720 points, according to a Reuters poll of 14 analysts over the past week. That follows two poor years for the index, currently trading around 1,500. It is up around 9 percent this year following a 22 percent fall in 2011. "I am seeing investor interest rising towards Russian stocks so I'm definitely seeing next year significantly better than the current year," said Mark Rubinstein, head of research at Metropol, as he expects the euro zone to recover and China's growth to speed up.
In a similar poll in December last year, analysts were bullish and likely wrong with their call for the RTS value of 1,851 points at the end of 2012. The index closed at 1,506.91 on Wednesday. Optimism for the equity markets is partly based on expectations that tension in the Middle East will support oil prices and that the worst is over for crisis-hit Europe. Brent crude is flat on the year at around $108 a barrel. Russia's market is tied to factors outside the country's control - the oil price and the strength of its largest export market of Europe. While oil has stayed high, the crisis in the euro zone has sapped investors' appetite for Russia risk.
Angelika Henkel, a senior equity analyst at Alfa Bank, predicts a modest rise in the index which she said would be largely supported by oil prices. "The main factor for the Russian domestic market is oil prices - when we have prices of $110 or $115 it will be good for stability but when we have under $100 I think we have a very big problem with the investment climate," Henkel said.
Russian stocks traditionally trade at a discount to emerging market peers due to the country's reputation for corruption, state intervention in business and the economy's over-dependence on energy for its growth. Russia can be a hard sell to investors who see other fast-growing emerging markets in Asia and South America offering a better trade-off of risks and rewards. The market mood has correlated fairly closely with attitudes towards more risky European instruments since the end of 2011, say analysts at Uralsib, most notably the spreads of Italian and Spanish sovereign bonds.
With indexes weighed down by state-controlled resource stocks, like gas export monopoly Gazprom, analysts advise investors to pick growth stocks in real estate, consumer, healthcare and banks, as well as Internet and media plays. "Our base case rests upon Russian economic growth next year buoyed by consumer spending, ongoing credit expansion and structural factors," said analysts at Uralsib. The bullish forecasts for consumer growth come despite forecasts for Russia's economy to grow 3.2 percent in 2013, according to a recent Reuters poll, slower than its BRIC rivals.