On December 15, VTB Capital’s Research team held a press briefing for leading business media. The main topics of discussion included overall results of the year, prospects for economic growth and strategy for stock and bond markets in 2017. The key speakers from VTB Capital were by Alexey Zabotkin, Head of Investment Strategy at VTB Capital, Alexander Isakov, Russia and CIS Economist at VTB Capital, Maxim Korovin, Senior Strategist at VTB Capital and Mikhail Rasstrigin, Equity Markets Strategist at VTB Capital Markets. During the event VTB Capital analysts focused on the Russian economic growth, the outlook for development in global markets and the most in-demand investment tools.
Alexey Zabotkin, Head of Investment Strategy at VTB Capital, said: “In 2017 we expect moderate acceleration of world GDP growth to 3.4% (2016: 3.0%), mostly on the back of a firmer dynamic in the EM economies. In the second half of the year the effects of the fiscal stimulus considered by the incoming US administration may also materialize. Global interest rates, already sharply up in the recent weeks, will continue to creep higher on the back of the Fed policy tightening and repricing of inflation expectations. This may provoke some compression for the global equities multipliers. The fate of Oil price, which jumped following the grand oil production cut pact uniting OPEC and several non-OPEC countries (including Russia), will be decided by the compliance with the pact, and the speed of the supply ramp-up by the producers not participating in the agreement, namely, the US oil producers. So far, we see our baseline projection of Urals Oil averaging USD52/bbl next year as a properly balanced one”.
Alexander Isakov, Economist for Russia and CIS at VTB Capital, said: “If our basic assumption are to prove correct we expect that CBR monetary policy will help reach the inflation target in 2017. The risks of slight under - and overshoot are roughly balanced. Russian economy is set to expand 1.0-1.5% in real terms next year. In the meantime, our estimate of the structural growth rate of the economy is 2.5% which is above currently dominating consensus of 1.5%.It should be separately noted that one of the favourable tendencies in the Russian economy is increase of commitment and coordination of policy actions in monetary and fiscal matters”.
Maxim Korovin, Senior Strategist at VTB Capital, said: “Next year's outlook for OFZ market would be shaped by a combination of factors, of which we think the major ones are a) resume of monetary easing policy, b) new supply increase, c) further Basel III implementation and iv) global flows in EM debt markets. We think that pricing power of local banks would increase next year as lion's share of planned new issuance would be absorbed domestically. Further CBR's easing - we see key rate at 8.5% by YE17 - should improve the carry for banks. On top of that, implementation of Basel III regulation should prop up banks' bid for OFZs as well. As far as international flows are concerned, we expect RUB 100-200bn of portfolio inflows as a part of general increase in allocations to EM local debts. However, the risk is that rising US rates might spur the outflows from EM funds in 1H17”.
Mikhail Rasstrigin, Equity Strategist at VTB Capita, said: “We see RTS Index target at 1,100 at the end 2017 in the oil’52 scenario (base case). Shall the oil price appreciate to USD 70/bbl, the target will move to 1,350. Among the corporate sectors, oil and gas names shall benefit the most (assuming no change to taxation regime), while metals and materials might suffer from stronger RUB. The latter will however also depend on the budget rule discipline (shall be clear in early 2017), which might protect materials from losing the devaluation-linked competitive advantages”.
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