SEMINARIO DE MERCADOS GLOBALES
Sanctions – A blessing in disguise for Russian equities?
Hugo Bain| Fecha del evento Índice
1. 2018 in review 2. The Institutions – Stability and Prudence 3. The Economy – Where does GDP growth come from? 4. The Corporate Governance – Minorities and Oligarchs 5. The Fundamentals – Valuations and cashflows 6. The Geopolitics – Who needs good news when you can have no news? 2018 in Review Russia outperforms 20 90 US Sanctions on Rusal, EN+ “Sanctions bill from hell” Kerch Strait, Ukraine 15 85 Skripal case in UK Mueller investigation 10 80
5 75
0 70
-5 65 USD/barrel
-10 60
Douma chemical attack
Cumulative total return (USD) return total Cumulative -15 Brent (RHS) 55 MSCI Russia -20 MSCI Emerging Markets 50 dic. 2017 dic. 2018 dic. jun. 2018 mar. 2018 mar. sept. 2018 sept.
Source: Pictet Asset Management, Bloomberg L.P., 31st Jan 2019 3 Estrictamente privado y confidencial The Institutions 20,0 Headline CPI, Y/Y Stability and Prudence (1) – Monetary Policy Real Rate 15,0
10,0
4.30 5,0 %
3,70 0,0 • Stability is a defense against sanctions -5,0
• Banking system clean up -10,0 07 08 09 10 11 12 13 14 15 16 17 18 • Central Bank of Russia = Bundesbank Source: Pictet Asset Management, Bloomberg L.P., 31st Jan 2019
1000 897 859 783 800 Elvira Nabiullina 681
600 575 • 2015 Central Bank Governor of the Year 484 (Euromoney, UK) 400 356
• 2017 Central Banker of the Year, Europe 228 (The Banker, UK) Russian banking licences 200 100
0 2013 2014 2015 2016 2017 2018 2020E 2022E 2024E Source: Pictet Asset Management estimates, BCS Securities, January 2019 4 Estrictamente privado y confidencial The Institutions Stability and Prudence (2) – Prudent Fiscal Policy
600
Central Bank of Russia 550 International Reserves
500
Bllions 450
• Fiscal conservatism USD 400
350 • Budget rule 300 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 • VAT and retirement increases Source: Pictet Asset Management, Bloomberg L.P., 31st Jan 2019
15 FISCAL BALANCE • FX reserves are a sanctions defence 4Q MOVING AVERAGE 10
5
0 % GDP
-5
-10
-15 08 09 10 11 12 13 14 15 16 17 18 19 Source: Pictet Asset Management, CEIC, Datastream, 31st Jan 2019
5 Estrictamente privado y confidencial The Institutions Stability and Prudence (2) – Prudent Fiscal Policy
67 MALE LIFE EXPENTANCY IN 66 RUSSIA POLICY RETIREMENT AGE
65
64
63 Age 62
61
60
59
58 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Source: Pictet Asset Management, World Bank, 30th Jan 2019
6 Estrictamente privado y confidencial The Economy At the cusp of a new credit cycle 120%
100%
80% • By almost all metrics, Russia is highly unlevered ratio deposit to Loan 60% BRAZIL PERU MEXICO RUSSIA POLAND INDONESIA SOUTH CZECH • Bank loan to deposits under 100% AFRICA REPUBLIC Source: Pictet Asset Management, Factset, 31st Dec 2018
• Domestic credit to private sector as a % of GDP 200% is very low
• Government debt is at 12% of GDP 150%
100% (% GDP)
50%
0% Domestic credit to Private sector sector to credit Private Domestic Switz. China S. Korea UK Norway Japan EU World Germany Russia India Source: Pictet Asset Management, World Bank, 3th Jan 2019
7 Estrictamente privado y confidencial The Economy
The longer term potential - Putin’s plans Russia real GDP 20,0 3M/3M ANNUALISED 15,0 Y/Y AVERAGE 10,0 • Making Russia a “top 5 global economy” 5,0
% 0,0 • 3 Trillion ruble infrastructure plan – 3% of -5,0 GDP -10,0 -15,0 • Mortgageavailability and housing stock -20,0 96 98 00 02 04 06 08 10 12 14 16 18 • Life expectancy to 78 Source: Pictet Asset Management, CEIC, Datastream, Dec 2018
Household debt, % of net disposable income • Sustainable real income and real pensions 250 growth 200
150
100
50
0 RUSSIA BRAZIL CHILE GERMANY US UK SWITZERLAND
Source: Pictet Asset Management, OECD, 31st Jan 2019 8 Estrictamente privado y confidencial The Corporate Governance Sanctions have resulted in positive change across corporates
90% MSCI Russia Net Debt / EBITDA 80% Similar to the institutions, corporates have: 70% 60% 50% • Improved their capital allocation 40% • Debt levels have reduced (10Y low) 30% • Capex programs curtailed 20% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
• Become aligned with minorities 45% • Cash (dividends) stays in Russia – self 40% sufficiency and stability 35% 30% 25% 20% 15% MSCI Russia Dividend Payout Ratio 10% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Source: Pictet Asset Management, Factset, 31st Jan 2019
9 Estrictamente privado y confidencial The Corporate Governance Distribution policies
Div Yield Payout Ratio PE Ratio (FY2) (FY2) (FY2) Globaltrans 14.2 86 6.6 LSR Group 13.2 58 4.7 Etalon 12.9 54 3.9 Alrosa 12.7 82 6.7 Sberbank Prefs 13.0 55 4.0 Magnitogorsk 11.9 130 7.2 Novolipetsk 11.7 86 8.8 Severstal 11.3 81 8.3 Evraz 10.6 64 6.6
Source: Pictet Asset Management, Factset, 31st Jan 2019
10 Estrictamente privado y confidencial The Fundamentals Russian Energy 220 Earnings (RUB) Valuations and Cashflows (1) – Exporters 200 PE Ratio 180 Earnings (USD) 160 140 120 100 80
1. Low Capex jul. 2018 dic. 2017 dic. 2018 jun. 2018 jun. oct. 2018 feb. 2018 feb. abr. 2018 ene. 2018 ene. 2019 ene. nov. 2018 nov. ago. 2018 mar. 2018 mar. may. 2018 may. Good for 2018 sept. 2. Weak Ruble earnings and free Russian Materials 3. Strong Commodity 160 cash flow Earnings (RUB) 150 Prices PE Ratio 140 Earnings (USD) 130 120 110 100 90 80 jul. 2018 dic. 2017 dic. 2018 jun. 2018 jun. oct. 2018 feb. 2018 feb. abr. 2018 ene. 2018 ene. 2019 ene. nov. 2018 nov. ago. 2018 mar. 2018 mar. may. 2018 may. sept. 2018 sept.
Source: Pictet Asset Management, Factset, 31st Jan 2019 11 Estrictamente privado y confidencial The Fundamentals Valuations and Cashflows (2) – Domestics Russian food retail 40 LNTA-GB 35 FIVE-GB 30 MGNT-RU
25
20
15
10
1. Stable earnings Price earnings to FY1 5 2011 2012 2013 2014 2015 2016 2017 2018 2019 2. Strong returns Sberbank Fundamentals 3. Distressed prices – Risk Premium 24
20
16
12 ROE FY1… 8 2016 2017 2018 2019
10 8 6 4 2 Div Yield FY1… 0 2016 2017 2018 2019 Source: Pictet Asset Management, Factset, 31st Jan 2019 12 Estrictamente privado y confidencial The Fundamentals Valuations and Cashflows (3) – Dividends
Russian dividend yields are at extreme levels
9 140% MSCI Russia NTM DY / MSCI Emerging… 8 120% 100% 7
80% 6 60% 5 40% 4 20%
Premium/Discount 3 0% Dividend Yield FY2 -20% 2
-40% 1 -60% 0 India China Brazil World dic. 2005 dic. 2006 dic. 2007 dic. 2008 dic. 2009 dic. 2010 dic. 2011 dic. 2012 dic. 2013 dic. 2014 dic. 2015 dic. 2016 dic. 2017 dic. 2018
st Source: Pictet Asset Management, Factset, 31 Dec 2018 South Africa Equities fundEquities Pictet RussianPictet Emerging Markets 13 Estrictamente privado y confidencial The Geopolitics Who needs good news when you can have no news?
1. Russia & the West 3. Russia in the Middle East
2. Skripal 4. Ukraine
14 Estrictamente privado y confidencial Russia in the future
Company Worth (Bn) Age • Oligarch mentality has shifted – getting Vladimir Potanin Norilsk Nickel 21 58 older! Leonid Mikelson Novatek 20.2 63 Vladimir Lisin Novolipetsk 19.1 62 • IPOs are low due to market valuations, Vagit Alekperov Lukoil 18.3 68 not a weak pipeline Aleksey Mordashov Severstal 18.3 53 Alisher Usmanov Metalloinvest, MTS 15.7 65 • Technocratic appointments across the Roman Abramovich Evraz, Nirolsk Nickel 15.3 52 ministries Gennadiy Timchenko Novatek, Sibur 14.5 66 Andrey Melnichenko Eurochem, SUEK 14.3 46 Viktor Vekselberg Rusal 13.9 61 Mikhail Fridman Alfa Group 13.1 54 Source: Pictet Asset Management, Bloomberg L.P. , 22nd Feb 2019
15 Estrictamente privado y confidencial Russian Equities
Active is the way forward…most of the time 220 VANECK VECTORS RUSSIA ETF Russia Active Funds 200 • Active funds outperform over 10Y, 5Y, 3Y periods 180 • Broader picking pool increases alpha
generation opportunities. 160 • Our investible universe contains close to 50 names, benchmark only has 22 names. Return USD 140 (rebaded Dec 2014) Difficult to overweight energy • 120 • Higher exposure to domestic names 100
80 2014 2015 2016 2017 2018
Source: Pictet Asset Management, Factset, 31st Dec 2018. *Equal weighting of 3 large Russian equities active funds.
16 Estrictamente privado y confidencial SEMINARIO DE MERCADOS GLOBALES