The ruble is rolling again – but for how much longer?

– Oil and gas prices on the upswing –

by Andreas Männicke, Managing Director of ESI East Stock Informationsdienste GmbH (www.eaststock.de) and Editor of EAST STOCK TRENDS

The Brent oil price rose to a new high for the year of over 77 US dollars/barrel (now at 73 US dollars/barrel) on 6 July, after there has been no agreement yet at OPEC on future production levels. The Moscow stock exchange, which is dominated by the big oil and gas companies, has profited from the high oil price in particular. As a result, however, Russia’s current account, trade and budget surpluses are now also higher. The RDX index rose to a new high for the year of 1843 index points on 6 July, an increase of 28 percent since the beginning of the year.

But not only the Moscow stock exchange convinced again with a clear outperformance to the DAX, but 10 stock exchanges from Eastern Europe were able to clearly outperform the DAX. However, only few German investors take advantage of the outperformance opportunities of the Eastern European stock markets. Andres Männicke also gives his assessment of future opportunities in his stock market letter EAST STOCK TRENDS (www.eaststock.de) and in his new EastStockTV video, episode 188 at www.YouTube.com .

OPEC still disagrees – oil price nevertheless rises temporarily

Since last Thursday, OPEC has been holding marathon meetings to negotiate future production levels and has apparently failed to reach agreement. In the past, this always led to a slump in the oil price when OPEC did not agree. Now, however, it is interpreted as meaning that the agreed production volumes will remain as they are, which, however, is not to be expected. There was talk of an increase in production of 2 million barrels a day. Iran is a major risk factor. If the US sanctions against Iran are eased, more oil could come back onto the world market to reduce the current supply deficit.  On 8 July, the oil price already corrected to 73 US dollars and the WTI oil price to below 82 US dollars/barrel.

Eastern European stock markets as clear outperformers

It can be assumed that the oil price will also fall sharply again in the next few weeks, once the delta variant is again causing more concern worldwide and a 4th Corona wave is threatening in autumn, although most adults in the industrialised countries should have been vaccinated by then. However, the willingness to be vaccinated is already clearly declining.

However, this does not yet seem to play a major role on Wall Street, because the S&P index also reached a new all-time high of 4354 index points on 7 July, as did the NASDAQ Composite Index with 14,679 index points. However, both indices corrected on 8 July’.  This represents a year-to-date gain of over 16 per cent for the S&P Index and over 1 per cent for the NASDAQ Comp. Index, while the DAX has so far “only achieved a gain of just over 12 percent by 8 July. However, most Eastern European stock exchanges performed much better, first and foremost the Almaty Stock Exchange with a plus of 43 percent on the KTX Index, but also the Kiev Stock Exchange with a plus of 27 percent on the UTX Index. 10 stock exchanges from Eastern Europe clearly outperformed the DAX and S&P index, including the stock exchanges from the Baltic States and Southeastern Europe such as Slovenia, Romania and Bulgaria.

Moscow stock market remains cheap despite super bull market

One of the main beneficiaries of the sharp rise in oil and gas prices are the Russian “red chips”, i.e. the Russian oil and gas companies that also dominate the Russian stock market. Despite the sharp rise in prices, they are all always not only valued low, but also pay out above-average dividends. Due to the high political risks and the tightening sanctions of the USA as well as the EU against Russia, the Russian “red chips”, i.e. the Russian blue chips, are traded at a high discount compared to Western companies. The RDX index, an artificial product of the Vienna Stock Exchange for Russian shares, where Russian energy stocks dominate, already rose at its high by 28 percent to over 1800 index points, far more than the DAX. As soon as the oil price collapses again, however, prices on the Moscow stock exchange are likely to fall sharply again.

The rouble is rolling again

Due to the higher oil price, the value of the rouble against the euro also increased to below 87 EUR/RUB, which is a new high for the year. Retail sales also increased significantly again. In short: the rouble is rolling again. However, inflation also rose to over 6 per cent. That is why the Russian central bank raised the key interest rate to 5.5 per cent.

Gazprom with new high for the year

The gas giant Gazprom continues to be the most sought-after investment, also among German investors. Despite the continuing US sanctions, Gazprom will now complete the construction of the Nordic Pipeline in the summer. The share price has already risen by more than 30 per cent this year to a new annual high of €6.67 and by almost 100 per cent since last year’s low. The price of the oil company LUKoil has also risen by 30 per cent since the beginning of the year to €78.

Banks booming in Russia, especially fintech banks

Due to the strong increase in the oil price, the economic situation in Russia is also increasingly improving. GNP growth of 3.5 per cent is now expected, as well as high current account, trade and budget surpluses. With a debt of 20 per cent of the GNP, Russia is still one of the least indebted countries in the world. The big banks Sberbank and VTB Bank are currently making high profits and are in a much better position than German banks. The fintech banks in Russia, such as TCR Group, are also growing strongly. It remains to be seen, however, whether the USA will decide on new sanctions against Russia after the new hacker attacks on US companies, even though it has not been proven that the hacker attacks came from Russia. However, the bullish trend on the Moscow stock exchange remains fully intact.

Delta variant causes concern in Russia, but not among investors

Investors have not yet been deterred by the strong spread of the delta variant in Russia, which recently claimed more than 700 lives a day with more than 30,000 people infected. Vaccination readiness in Russia is still very low. However, the vaccination rate is now gradually increasing through quasi-compulsory vaccinations via the companies. Previously, only 13 per cent of the population had been vaccinated, although Sputnik V was the first vaccine in the world together with the Chinese vaccine.

First inform, then invest

Inform yourself now also in detail about the background and the development of the Ukraine/Russia crisis but also the future recovery potential of the undervalued shares from Eastern Europe. There are also new opportunities in the Baltics, Romania and Ukraine, with the respective stock indices all up in 2019.  For example, some Ukrainian agricultural stocks have already more than doubled in price since 2016, and in 2018 the PFTS index was already up over 70 per cent again. Kazakhstan stocks were among the top performers in the world in 2017 (+56 per cent), but not in 2018 and not in 2019, but again in 2020/21.

In 2018, 10 stock markets from Eastern Europe were already among the best-performing stock markets in the world, all of which clearly outperformed the DAX and also the US stock market. In 2019, the Moscow Stock Exchange was once again the clear outperformer among all global stock markets, with a plus of over 46 percent in euro terms. But also the Bucharest Stock Exchange (Romania) already rose by over 32 percent in 2019. The stock markets in Southeast Europe and also in the Baltic countries remained very stable in the plus (Croatia +13 percent). Last year, 6 stock exchanges from Eastern Europe were among the 30 best-performing stock markets in the world and this year even 10 stock exchanges from Eastern Europe until the end of March 2021. After the Corona crash, it is still worthwhile to take a look at Eastern Europe.

Order now a trial subscription (3 issues by e-mail for only 15 €) of the monthly stock exchange letter EAST STOCK TRENDS (EST) with another Ukraine/Kazakhstan/Russia special and a dividend special as well as with a lot of background information and new investment suggestions such as the “Stock of the Month” and lucrative certificates at www.eaststock.de, there under Stock Exchange Letter.

The last EST was published on 30 June 2021, and the old EST model portfolios have already made strong gains in 2019. The “stock of the month” from September 2018 Polyus Gold already rose by more than 100 per cent and the gold stock Petropavlovsk even by almost 400 per cent at the high. At the end of 2018, a new “gold” sample portfolio was opened in EST, which is already up 121 per cent, and the new December 2019 portfolio of turnaround candidates rose 48 per cent.  Copper producer KGHM Polska Miedz is already up almost 100 per cent since December 2019, and the December 2020 “stock of the month” TCR Group – a fast-growing fintech bank from Russia – is already up over 180 per cent in 6 months. In Kazakhstan, the new IPO Kaspi.kz, a fast-growing fintech company from Kazakhstan, which was featured in detail in the penultimate EST, is making a splash. The “Stock of the Month” from January 2021, the iron ore companies Ferrexpo and Black Iron from Ukraine could already gain 30 to 40 percent since the beginning of the year So there are always new opportunities on the Eastern stock markets! The motto therefore remains: Go East!

Interview notes: The last TV interview on NTV/Telebörse was on 15 April 2021 together with Andreas Männicke and Kemal Bagci from BNP Paribas and the last radio interview was on 19.5.21 on Börsen Radio Networks.  The next interview will be on 2.8.21 on Börsen Radio Networks. You can download the interviews now at www.eaststock.de, there under the heading “Interviews”, as well as the EastStockTV video of the same name, episode 188. By the way: have you already subscribed to the EastStockTV YouTube channel?