Market update: No ideas, no direction

RTS : 868 | Brent spot: 38.9 | RUB/USD : 67.5


Previous five trading days brought just small changes to the global equities – MSCI World added around 0.5%. Emerging markets showed generally the same results. In lack of new ideas investors watching what Yellen&Co says about FED future policy. Last night speech bring some relief to bulls — In a speech to the Economic Club of New York, Yellen said it is appropriate for U.S. central bankers to “proceed cautiously” in raising rates.

Oil finished week with losses after sharp short-covering rally – Brent spot prices going below $ 40 per barrel. Russian equities showed the same result with oil – RTS lost about 2.5%. Instead of this ruble was strong and traded below 70 per USD thanks for tax period in Russia.

Last week full year results was published by MTS brought no big surprises. Company gave conservative outlook for 2016 in terms of growth and margins. But company is still offers great double-digit free cash flow yield which is distributed almost entirely to shareholders as dividends.

In blue chip segment relatively weak performance was shown by oil companies – as oil slides. Rosneft said that planning to spend about 1T RUB (14 bln USD) per year on capex. Taking into account that the projected EBITDA in the coming years will be about 1.3T RUB I see big risks for free cash flow and dividend payments.

Global rally which was provoked by expectations of soft monetary policy  obviously fade away and in lack significant news correction is most likely. On the Russian equities correction may be more sharp if oil prices fail to resist above $ 40 per barrel.

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