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[loganair] 09/11/2015 20:05

Lack of options leaves Russia’s economy in a tight spot:

Russia’s beleaguered economy is under increasing pressure as the difficulties of bringing the key rate down while preventing further devaluation of the ruble, combined with the prospect of passing the 2016 budget in a time of rock-bottom oil prices, take their toll, leaving the Central Bank with precious little room for manoeuvre.

Recently the entire world held its breath waiting for the Federal Reserve’s decision on whether or not to start increasing America’s key interest rate. When it received information about the rate remaining unchanged, the world exhaled, but more with disappointment than with relief. The problem of the ‘normalization’ of the monetary-credit policy has not been solved, but remains in limbo. Meanwhile, for the last year the Russian Central Bank has been trying to solve a major dilemma: how to reduce the key rate in order to stimulate the economy but at the same time prevent another wave of devaluation of the ruble. These efforts were appreciated by experts at Euromoney magazine, who named Elvira Nabiullina the best central banker of 2015. Nevertheless, Russian mass media is still highly critical of the Central Bank and its monetary-credit policy.

Yet the situation in the Russian economy today is highly complex. It seems that in 2016 the Central Bank will not be able to enact an active credit policy – that is to say, a quick growth of money volumes and a reduction of the key rate.

However, the consequences of the “overproduction of credit” in developed countries may become more painful for them than the issues that Russia is overcoming today.

One of the number of problems to accumulate during the recent period of high oil prices has been the significant overvaluation of the ruble in real effective terms. It was generated both by the growth of export revenues and by the substantial inflows of capital, especially in the 2006-2008 period. The consequent decline of competitiveness and the growth of the private sector’s foreign debt provoked a deterioration of Russia’s balance of payments starting in 2011-2012. And the recent sanctions against Russia and the fall in oil prices made the preservation of the old currency and monetary model practically unviable.

In 2014 the Russian Central Bank made a painful decision to adopt a floating exchange rate and a policy of inflation targeting. It set the ambitious aim, especially in current conditions, of decreasing inflation in the next two-three years to 4 percent.

The policy that the Russian Central Bank is currently carrying out is very cautious: The key rate is kept at a safe-looking level, the growth rate of the capital offer is very moderate, and there are no interventions for increasing
reserves or for annual refinancing in foreign currencies.

Such a policy can certainly be called severely anti-inflationary. Nevertheless, inflation remains rather high: 12-14 percent. The problem is that the Russian economy is open and the conditions of both the payment balance and the budget are extremely dependent on oil prices and the ruble-dollar exchange rate. This means that with a freely floating Russian national currency, the ruble-dollar exchange rate must constantly adjust to the changing expectations of oil prices.

As a result, the benefits from devaluation are growing, and this then has an effect on prices. In turn, this supports expectations of high inflation. And it is very difficult to fight this for a policy that is based on the management of the key rate. However, the Central Bank is still capable of maintaining this elusive balance: It is reducing the key rate very cautiously in order to restore credit for the economy and its growth.

Unfortunately , there are two problems that the Russian Central Bank may soon face.

First is the possible introduction of the quantitative easing policy in the United States to increase the key rate.

The second relates to Russia’s acceptance of the 2016 budget and the consequent establishment of an expected ruble price for oil in 2016. Each of these events may stop the process of further reducing the key rate or increase the risk of renewing the process of devaluation-inflation. The increase of world key rates, as is expected, may generate another wave of capital outflow from developing markets, including Russia. This may weaken the ruble and force the Central Bank to harden its policy in order to avoid further inflation.

The passing of the 2016 budget is creating heated arguments inside the halls of power, making several things very clear: It is impossible to guarantee an acceptable deficit, and preserving reserve funds can only happen at the expense of reducing expenses or increasing the ruble equivalent of export revenues. If expenses are not reduced and in 2016 oil prices increase substantially, it is very likely that the ruble will weaken even more. Not having the status of a reserve currency, the ruble is deprived of the luxury that central banks from developed economies have: the active “printing of money” to restore their economies’ growth.

[loganair] 09/11/2015 19:02

As JRS is mainly for Capital Growth then in actually they do not have to declare a Dividend at all. In 2012 JRS had positive revenue of 5.03p but didn't pay a dividend.

[bisiboy] 08/11/2015 18:06

do they not have to distribute at least 85% of income as dividends?

[bugle4] 05/11/2015 21:52

It's a quiet board and would be even quieter if not for loganair.

Thanks for all the research.

[loganair] 05/11/2015 18:42

Personally even if able to increase the dividend I hope JRS do not and instead invest the extra revenue in buying further shares.

[loganair] 05/11/2015 18:16

Jim - Last year JRS revenue was 13.38p per share and paid a dividend of 13p per share. In The first 6 months of this current financial year JRS revenue was 5.07p (0.37p in first 6 months of 2014)

2013 dividend was 15.30p on revenue income of 18.14p.

Up until 2011 JRS was making a negative revenue. Since then Russian companies have vastly increased their dividend pay out.

[jimcar] 05/11/2015 15:03

loganair

Last financial year the comany said that it pays out revenue as dividend

"Therefore, based upon the revenue generated by the portfolio this year (13.8p), the Board proposes a dividend of 13.00 pence (2013: 15.30 pence), to be paid on 11th March 2015 to ordinary shareholders on the register at the close of business on 6th February 2015. If approved by shareholders, this distribution will amount to a total of £6,829,000 (2013: £8,058,000). "

Given that the current NAV figures give

THE CAPITAL ONLY NET ASSET
VALUE PER SHARE IN PENCE,
WITH DEBT AT PAR VALUE: 367.43
THE NET ASSET VALUE PER SHARE
IN PENCE, INCLUDING INCOME
WITH DEBT AT PAR VALUE: 388.62

This seems to imply that it has already has 21p in revenue and should be declaring a dividend of 20p plus or at least maintaining its 13p dividend.

Is there a fault in this logic?

[loganair] 05/11/2015 13:15

YoY growth seen across all segments - Bond segment again posts largest MoM increase in turnover. Moscow Exchange (JRS 4th Largest Investment) published data on trading volumes in October and 10M15 on Tuesday. In terms of monthly growth, the bond segment was again the top performer, with trading volume up 50% MoM thanks to increased activity in both the primary and secondary markets. Meanwhile, the equity business continues to alternate between positive and negative MoM dynamics; volumes were up 14% MoM in October after the 8% MoM decline in September. Money market volumes grew for the second straight month, increasing 12% MoM, while FX volumes fell 11% MoM after four months of growth. The number of derivative contracts traded was little changed relative to September.

[loganair] 02/11/2015 10:27

CBR leaves the key rate unchanged:

The CBR decided not to lower the key rate on Friday, as it sees inflationary risks as high. At the same time, the regulator stated that a rate cut in December is likely. The ruble strengthened about 1% after the decision, helped by stronger oil prices.

[loganair] 02/11/2015 10:26

Operating profit falls 53% QoQ in dollars; net profit a positive surprise. Surgutneftegas (SNGS RX – Buy) (JRS 3rd Largest Investment) published a brief version of its 9M15 RAS accounts, from which the market has calculated some of the key 3Q15 numbers. In 3Q15, revenues net of export duties rose 2% YoY and declined 14% QoQ in ruble terms to RUB227 bln ($3.6 bln). Operating profit declined 9% YoY and 44% QoQ to RUB42 bln ($0.67 bln), narrowing the operating margin by 2 ppt YoY and 9 ppt QoQ to 18%. In dollar terms, operating profit fell 48% YoY and 53% QoQ. In contrast, the company reported net income of RUB369 bln ($5.9 bln), up 66% YoY in rubles and down only 5% YoY in dollars.

[loganair] 26/10/2015 07:27

Magnit (JRS 2nd Largest Investment) which has more than 11,300 budget convenience stores in Russia, has proved relatively resilient but has not escaped totally unscathed as shoppers have tightened their belts in the face of a weak rouble and high inflation.

Magnit released disappointing 3Q15 IFRS results on Friday, missing expectations on EBITDA. Revenue increased 22% YoY to RUB236 bln ($3.7 bln), in line with the trading update published earlier, while EBITDA rose just 10% YoY to RUB26.5 bln ($421 mln), which was 5% lower than expected. The EBITDA margin thus narrowed 1.2 ppt YoY to 11.2%, 0.6 ppt below the consensus forecast. The drop was mainly a result of price cuts to stay attractive for consumers, as well as accelerated expansion, said Natalya Kolupaeva, analyst at Raiffeisenbank in Moscow.

"For now, consumers have a more aggressive approach to prices than two years ago and this will continue for quite a long time because wages are not growing and inflation has been rather high. We see that consumers are very selective about stores and are very focused on price," said Sergey Galitskiy, Magnit CEO.

Magnit has said that it will open at least 1,350 low-price convenience stores in 2015, the company's biggest increase in a single year. Galitskiy said Magnit planned to open more than 1,000 convenience stores next year but the pace of expansion could slow in 2017.

"If we feel we cannot manage this mass, we will stop because our management is sharply focused on profitability," he said.

Magnit also announced changes to its senior management team as it unveiled plans to consolidate all three retail formats and its marketing department under one Director.

Kolupaeva reiterated a "buy" rating on Magnit stock, saying the company was on track to meet its full-year EBITDA margin forecast closer to the upper end of the 10.5-11.3 percent range.

[loganair] 24/10/2015 20:42

Moscow (AFP) - Russia's economy shrank 4.3 percent in the third quarter this year, the government said Monday, as a recession caused by low oil prices and Western sanctions over Ukraine continued to take its toll.

Deputy economy minister Alexei Vedev told Russian news agencies that preliminary estimates put the year-on-year drop in gross domestic product for the third quarter at 4.3 percent, after contracting by 3.8 percent in September compared with 4.6 percent in August.

Officials in Russia are struggling to breathe life into the economy as the ruble has dropped precipitously in value and inflation and poverty have risen sharply.

Overall, the economy shrank 3.8 percent for the first nine months of the year, Vedev said.

In a sign of how tough the situation has become, official statistics released Monday showed that consumer spending in the country is falling at its steepest rate in 15 years.

Year-on-year retail sales fell by 10.4 percent in September, the sharpest drop since 2000 according to RIA Novosti news agency, as Russians have seen their spending power stripped away by the crisis.

Statistics showed that real household incomes dropped by 9.7 percent in September on the back of a 9.8 percent plunge in August.

Russia's government estimates that the economy will shrink by around 3.9 percent in 2015 before recovering slightly by 0.7 percent in 2016.

The World Bank last month predicted the Russian economy would shrink by 3.8 percent in 2015 in its baseline scenario, a far steeper decline than an earlier forecast of a 2.7-percent contraction.

The downturn in 2015 could be as much as 4.3 percent if oil prices continue to drop and average around $50 dollars a barrel for the year, the bank said.

The bank ditched its earlier forecast of a gentle recovery with 0.7 percent growth in 2016. It now expects Russian economic output to decline 0.6 percent next year, with a recovery only appearing in 2017 with growth of 1.5 percent.

The poverty rate has climbed to 15.1 percent, representing 21.7 million people, in what the World Bank called a "troubling rise" exacerbated by increasing food prices.

In some regions, more than 35 percent of the population live in poverty, it said.

The International Monetary Fund estimates that Western sanctions imposed on Moscow over its meddling in Ukraine could cost Russia about nine percent of GDP in the medium-term.

Ratings agency S&P said last week that the outlook for Russia's recession-hit economy remains weak, predicting it would only expand by about 0.4 percent annually between 2015 and 2018.

[loganair] 20/10/2015 09:02

PPI dropped 1.1% MoM in September … Rosstat data published on Friday showed that PPI dropped 1.1% MoM in September, and YoY growth slowed to 12.7% from 13.7%. The MoM price drop in September was unexpected; the Interfax consensus forecast was for a 0.1% MoM increase. PPI grew 12.3% YoY in 9M15.


It seems to me at the moment in the Russian economy the figures seem to be going the right way.

[loganair] 17/10/2015 20:05

Record-low oil prices, international sanctions and an expensive interventionist foreign policy — can things get any worse for the Russian economy? The answer varies according to which Russian captain of industry you speak.

The World Bank sees Russia’s economy shrinking by a steep 3.8 percent this year. A sharp contraction in real wages of 8.5 percent in the first half of 2015 has led to a rise in an already-high poverty rate and a tumble in consumer demand.

However, the billionaire president of Russia’s Rusal, the world’s second largest producer of aluminum, thinks the worst is yet to come — although not for at least another three quarters.

“There is still a crisis and we can’t see the bottom yet and there are a lot of issues that need to be resolved… I don’t think in the next nine months we will see the bottom yet,” Oleg Deripaska said.

He pointed to plethora of issues that needed to be resolved before the economy would see any improvement, including the volatility in commodity markets, an overreliance on state enterprises and government intervention and the inefficiency of the Russian debt markets and overall financial system.

In addition, Deripaska said there were “a few conflicts which need to resolve” — potentially a reference to Russia’s bombing campaign in Syria and activity by pro-Russian militants in Ukraine that are believed to be backed by Moscow.

However, Alexei Yakovitsky, chief executive of VTB Capital — part of VTB, Russia’s second-largest bank by assets — said this week that Russia’s economy was at, or near to, its nadir.

“Obviously, Russia’s economy has been going through a fairly tough adjustment, largely driven by external shocks. I’d say we’re either at the bottom or pretty close to it. I think we’re starting to see the early signs of things turning the corner — the economy is adjusting fairly quickly,” he said.

Yakovitsky forecast a “marginally positive result” in terms of GDP next year, in common with the World Bank, which sees the Russian economy expanding in 2016 by 0.7 percent

“This will be driven by import substitution, by the impact of the weak ruble and just the latest statistics show a reversal of capital flight with capital coming back in, which is also an early positive sign,” he said.

[loganair] 15/10/2015 14:20

Sales at 'Dixy' division increased 19.5% YoY in September. Dixy Group (JRS 14th Largest Investment) released a strong trading update for September yesterday, posting stronger revenue growth than in August. Consolidated revenues grew 17.0% YoY in September (up 4.1 ppt MoM) to RUB21.6 bln ($323 mln). Sales at the group's flagship 'Dixy' division rose 19.5% YoY to RUB17.5 bln ($262 mln), faster than the 14.6% YoY growth in August and the growth posted by Magnit's (JRS 2nd Largest Investment) convenience store segment in September, but slower than 'Pyaterochka' of X5 Retail Group. Dixy Group's Victoria and MegaMart divisions saw sales increase 8.4% YoY to RUB2.6 bln ($38 mln) and 5.3% YoY to RUB1.4 bln ($21 mln).

[loganair] 12/10/2015 17:26

September sales up 19% YoY. Magnit (JRS 2nd Largest Investment) published a trading update for September on Friday. Revenues rose 19.3% YoY to RUB74.1bln ($1.1 bln), slowing 1.5 ppt MoM. Sales growth at convenience stores, the company’s key segment, decelerated 0.7 ppt MoM to 16.3%% YoY to RUB55.2 bln ($0.8 bln), again barely exceeding general consumer inflation, which reached 15.7% YoY in September. Sales in Magnit’s hypermarkets division rose 9.5% YoY to RUB11.8 bln ($176 mln), in the Magnit family segment 65.2% YoY to RUB3.5 bln ($53mln) and in the cosmetics segment 121% YoY to RUB3.9 bln ($59 mln).

[loganair] 11/10/2015 20:21

Prime Minister Dmitry Medvedev warned that oil prices are likely to stay close to current levels for some time. His solution, given in a speech to the conference, is to diversify the economy away from natural resources, which was also a central aim of his presidency from 2008 to 2012.

Mr. Medvedev also repeated calls for a better investment climate. Otherwise, Russia may lose "investment, revenue, pace of economic growth and our intellectual potential."



Russia needs to reduce the government’s role in the economy and ease the burden state companies represent on the nation’s overextended budget and the economy ravaged by recession, Finance Minister Anton Siluanov said.

“We have a state economy, in essence, and we are now supporting this state economy through the budget, which is absolutely wrong,” Siluanov said at an investment forum in the Black Sea resort of Sochi on Friday. “State companies, which are usually known for their inefficiency, are weighing on the market and prices on the market and create negative economic results.”



Good News On Russia Economy As Inflation Seen 50% Lower Next Year:

Russian inflation is on the decline and by next year will be cut in half, if central banker Elvira Nabiullina gets lucky and the country’s weak economy cooperates.

Barclays Capital thinks she will get lucky. And that means interest rates will start to fall next year. Once that happens, investors will start creeping into Russian stocks once more.

Russia inflation declined slightly in September to a whopping 15.7% year over year, reversing direction after months of increases. The Russian ruble and inflation pass-throughs have been the driving factors behind price increases there, says Daniel Hewitt, a Russian fixed income analyst for Barclays Capital in London.

Between May to mid-September the ruble depreciated by nearly 40% against the dollar, tracking the woes of oil futures. But for the past month, the Russian currency has stabilized and even slightly appreciated. Ruble depreciation has led to inflation pass-through, making imports more expensive and pushing consumer costs higher for several months. With the ruble stabilizing, inflation is likely to fall.

The other factor behind the deceleration in inflation is base effects that are becoming more favourable for the Russian economy. The main downward impetus on inflation came from food prices. Russia slapped trade bans on its key European food partners in retaliation for sanctions against VTB Bank, Sberbank, Rosneft and Gazprom, among others. Food prices rose by 17.4% on the year last month. High, but still lower than it was six months ago. Prices have been in decline as Russia figures out new food suppliers and sources some goods closer to him, if not within its own borders.

“In our opinion, inflation has started a downward cycle that will continue,” Hewitt says. He expects inflation to fall to 12.5% this year and to 7% the second half of 2015. Once that happens, the inflation-targeting central bank will be able to resume interest rate cuts in Russia. This could happen sooner than the second half of next year. Investors should watch for the inflation trend to continue lower and watch for the ruble to track oil price trends, rather than geopolitics.



Russia Economy Minister: Economy to Return to Growth in 2016:

Presenting economic forecasts at a weekly government meeting, Alexei Ulyukayev said Russia's export-dependent economy started adjusting to the new economic reality in mid-2015, more accustomed to the lack of access to global capital markets and deteriorating conditions on commodity markets.

Mr. Ulyukayev reiterated that this year gross domestic product is likely to contract by 3.9%. But the economy could start growing again in annual terms as soon as the second quarter of 2016 and expand by 0.7% next year, thanks to recovering domestic demand, he added.

[loganair] 09/10/2015 19:57

Net income guided 30% lower YoY, no additional provisions on Transaero. Sberbank (SBER RX – Buy) (JRS 2nd Largest Investment) CEO German Gref offered selected 2015 guidance, including net income contracting 30% YoY. He also does not expect corporate lending to recover to pre-crisis levels this year or next year. Nor does he see the corporate portfolio changing materially by the year-end; it could expand up to several ppt, with demand from larger companies recovering quicker.

stable ruble supports record monthly earnings for this year - ROAE reaches18%. Sberbank (SBER RX – Buy) released September RAS numbers yesterday. ROAE reached 18%, the highest level since September 2014. This time, the bottom line was not influenced by a low effective tax rate (the latter was 17%, an almost normalized level) – but, instead, it was a change in provisions, which halved MoM, that was the main factor. The ruble was little changed MoM which, apparently, supported a COR of just 2%, the lowest since April (when the ruble had strengthened by around 10% MoM). NIM (adjusted for deposit insurance payments) fell by 20 bps MoM to 4.8%, probably as a result of deposits outpacing loans during 3Q15. Costs remained mostly flat (QoQ and YoY) and lagged behind inflation, and the operating jaws, on a quarterly basis, were positive as operating income rose 26% QoQ.

[loganair] 09/10/2015 19:53

Russia has been gold for hedge funds this year by Jeff Cox:

Judging by the headlines, Russia may look like a nation in turmoil. Investors, though, don't seem to mind.

In fact, for hedge funds, Russia has been one of the biggest and best stories of 2015, turning in the only positive performance among all emerging market strategies and crushing the returns of traditional stock market indexes.

The Russia/Eastern Europe Index returned 6.71 percent through August, according to the latest numbers from HFR, which tracks returns in the $3 trillion hedge fund industry.

This has come despite Russia's economy being in tatters, as gross domestic product contracted 4.6 percent in the second quarter. The nation has become a pariah on much of the global stage thanks to the conflict in Ukraine and its assistance to Syrian strongman Bashar Assad. Yet the investment returns pour in.

The Russia gain reverses a string of weak prior-year performances, with a decline of 25.9 percent in 2014 and a gain of just 4.4 percent in 2013.

Though its success earlier in the year had been attributed to a rising ruble and firming oil prices, Russia has maintained its dominance even as those two trends have reversed. The country's hedge fund index was up 5.17 percent and 4.36 percent in the first two quarters of 2015 respectively.

It's also not just in hedge fund strategies where Russia has been doing well. A light-volume exchange-traded fund that invests in the nation also has had a strong year.

The SPDR Russia fund, a $22.9 million fund that tracks the S&P Russia Capped BMI Index, has outperformed the stock market as well, with a 3.4 percent year-to-date return. Investors, nonetheless, have pulled a net $810,000 from the fund this year, according to ETF.com.

[loganair] 29/9/2015 20:11

Russia has to look for new solutions to improve the economic situation and no longer rely on such mineral resources as oil.

Breakthrough decisions on improving economy will be made in Russia in the next three-four years, Academic Supervisor of the Higher School of Economics (HSE) Evgeny Yasin said on Tuesday.

"I think that breakthrough decision on improving the economic situation in the country will be made in the next three-four years. Before that, one should not hope for improvements,"

Russia has "already exhausted its investment potential which was accumulated in the 1990s and in the beginning of 2000s," Yasin said.

He added that Russia’s economic policy is rather balanced. "Now, it is necessary to complete market reforms that were started in the 1990s and 2000s so that we can have an absolutely market economy. It is hard to say whether we can achieve that," Yasin stressed.

"Russia needs long-term and global changes to which people can gradually adjust."

[loganair] 23/9/2015 18:28

Tolls Start Monday on Moscow to St. Petersburg Highway - Drivers traveling along an express stretch of the M11 highway between Moscow and St. Petersburg must pay tolls starting Monday, a state-run road maintenance company said.

Tolls have been introduced for a section of the road bypassing the town of Vyshny Volochek, between the kilometer 258 and 334 highway markers, a spokesperson for GK Avtodor company said.

Tolls will vary from 150 rubles ($2.25) for smaller cars traveling at night, up to 920 rubles ($14) for buses and large trucks traveling during daytime or in the evening.

[loganair] 23/9/2015 18:25

Economic picture still unclear - Capital investment better than expected in August. According to data published by Rosstat yesterday, capital investment fell 6.8% YoY in August after dropping 8.5% YoY in July, which was a surprise for the market, as the Interfax consensus expected an 8.9% YoY drop. All in all, capital investment fell 6% YoY in 8M15.