Lying on its side: will the Russian stock market collapse
The Russian stock market is going through difficult times. After the winter recovery, the indices fell, stabilizing at a lower level. And in the fall, a new recession began, which led to a decrease in the Moscow Exchange index on October 6 below 2,600 points, which is the worst result since the beginning of the year, and if adjusted for inflation, it is the worst since the spring of 2023. Analysts, however, believe that there is no "bear" market as such, but there is prolonged stagnation. At the same time, investors can now invest in companies that offer good dividends and wait for the geopolitical situation to change and the key interest rate to decrease. Read more about the problems of the stock market in the Izvestia article.
Disappointment of a private trader
At one time, the stock market in Russia received strong support from private investors (their number exceeds 30 million people, while at least several million people are actively trading), which made it possible to mitigate the difficulties associated with the mass departure of non-residents after the start of their activities. For a long time, these "people's investments" paid off, as the market grew after the shock of 2022. This year, however, there are more and more disappointed people. The Moscow Stock Exchange index has fallen by 150 points since the beginning of the year, and there is still no sign of any "gap". On the contrary, the dynamics of the last month does not leave much room for optimism — the drop was almost 300 points. If we compare this yield with what banks offer, it is not difficult to understand what the vast majority of potential or real investors will choose.
In many ways, the fundamental factors are now on the side of the bears. If we look at the profits of Russian companies, they are steadily declining — by 7% in the first half of the year, with about 30% of firms having losses. For public companies, the statistics are hardly much better. We have a difficult situation in the commodity markets, starting with the oil one. Developers are having difficulties and retail is showing very moderate performance. Manufacturing industries, minus the defense industry, also do not shine. IT is still performing well, but one industry will not pull the market out.
In addition, there is a general slowdown in economic growth (inflation is less harmful to companies than stagnation), as well as a still very high real interest rate - the highest in the world. Almost all company executives complain about this, and, of course, the negative effect is visible in production volumes and profits. A separate problem remains the quality of corporate governance and consideration of minority shareholders' interests. Finally, the debt burden is growing, which can also inevitably affect profits and, consequently, quotes.
The key rate did not meet expectations
According to Yulia Khandoshko, CEO of Mind Money broker, it cannot be said that there is a full-fledged bear market in Russia right now.
— In fact, the market has no idea and is in a wide "sideways movement" — a sharp decline is not expected, however, as well as strong growth. The main factor of the movement now is not the economy, but politics: any changes in political conditions are immediately reflected in quotes," the expert states.
According to her, there are chances for growth, but they depend on several external factors. The first and most important is another reduction in the Central Bank's key rate, which will make money even cheaper and revive market activity even more. The second is the return of non—residents, that is, foreign investors who can add liquidity. If these two points work simultaneously, the market may show growth, although without the stabilization of the geopolitical situation, the movement will be limited.
Ivan Efanov, an analyst at Cifra Broker, also talks about the sidewalk.
— In the last three trading sessions, we have just seen a rebound from the 2600 zone according to the Moscow Exchange index. In general, we can say that September turned out to be the most negative month of the year in terms of unfulfilled expectations of market participants. In particular, the negotiation process has stalled, and the US rhetoric has shifted to a tougher side. Expectations for the key rate also fell short of expectations. Judging by the debt market, investors had expected a rate of 14% at the end of the year, but after the meeting of the Bank of Russia, the consensus no longer expects it to be below 16%. So far, the market remains news—driven and speculative, and there is practically no long-term money in it, as well as no significant drivers for sustainable growth," the expert notes.
Natalia Malykh, head of the Stock Analysis Department at Finam, expects stagnation in the market.
— The "sideways trend" of 2600-3000 according to the Moscow Exchange index, which we have been observing since April, is likely to continue. If there is no significant deterioration in geopolitics and the economy, we will be able to rise to 2,900-3,000 in October-November due to expectations of an improvement in monetary policy. The mitigation cycle has already begun and will continue, although not as fast as previously expected. There has been a lot of negativity in the market lately, and any good news will provoke moderate growth, including through the closure of shorts," the Izvestia interlocutor emphasizes.
According to her, the growth of the index may support the resumption of the devaluation of the ruble against the background of the budget deficit.
In turn, Gazprombank senior analyst Sergey Libin believes that the market has adjusted after the Central Bank's tougher-than-expected stance on the key interest rate.
— In our opinion, the current levels of the index already include a conservative PREP until the end of the year, a significant decrease from them is unlikely. Nevertheless, in the absence of signals about the softening of PREP, it is also premature to talk about a noticeable recovery growth," the expert points out.
Dividends to help
Analysts agreed that under the current conditions, investors should rely only on dividend yields, holding securities in anticipation of better times.
— Even in conditions of such stagnation, there are segments worth paying attention to now. First of all, this is the oil sector — companies like Lukoil and Tatneft. They pay good dividends and have a stable cash flow," says Khandoshko.
According to Malykh, the recession affects all sectors, but classic dividend security securities will look better than the market, but with the condition that they pay dividends with high returns — for example, preferred shares of Lenenergo and Transneft. Libin notes that MTS, Lukoil, Transneft, Sber, X5 and others have prospects among securities with high dividends.
According to Efanov, the more the economy slows down, the more clearly this is reflected in the results of companies from an increasing number of sectors.
— Over the past year and a half, the food retail sector has looked like a haven for investors during a period of high interest rates. But even there, not everything is so rosy now, in particular, there is a shortage of personnel and logistics costs are growing noticeably, which reduces the marginality of companies. Pharmaceutical companies are still doing better than the market, and large banks are also continuing to generate profits while maintaining good growth rates," the expert notes.
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