Monthly Market Outlook by ITI Capital

By the end of November, RTS may break through 1,500 points

  • Russia is the best performing market month and year-to-date.

  • Since the beginning of the month, Russia O&G companies were the best performing assets thanks to Surgutneftegas (31%), Gazprom (19%) and Lukoil (12%).

  • The demand was driven by strong rise in risk appetite, corporate news and rise in prices of natural gas by 22%.

  • Amongst other top performing assets were US oil service companies such as Halliburton (14%), Schlumberger (14%) and ConocoPhillips (8,4%) and S&P 500 healthcare services +10,% followed by steel index +10% and DAX +9,4%.

  • Russia O&G is also the best performing ytd, up by over 40%, while RTSI$ is up by 38% unprecedented growth followed by S&P 500 IT +37,2%, Greece +36,5% and China IT +30%. RTS performance is the best in history of trading, while for S&P 500 +23% the best in six years since 2013.

  • The worst performing asset this month was US VIX -25%, Russia 5yr CDS -19,4% and iron ore -13%. YTD, VIX is down by 50%, soft commodities -9%.

Rotation from fixed income to bonds, due to rising dividend yield and falling bond yields in $

Source: ITI Capital, Bloomberg

What has been driven such a risk appetite?

  • Renewed news over US China trade agreement on phase 1 which meant to happen in mid-November in Chile while postponed, intentions have been rising high as China has been increasing imports of US agriculture goods and investors have been playing the news upfront. Additional positive news flow came on Monday after it was announced that US is lifting part of trade sanctions from Huawei which is currently in US blacklist.

  • The Financial Times reported today that the U.S. was debating whether to roll back levies on $112 billion of Chinese imports. China has also previously demanded that Trump cancel plans to impose duties on roughly $160 bln in imports, scheduled for Dec. 15, which would hit consumer favorites like smart-phones and laptops. All in all, China is seeking the roll back of U.S. tariffs on as much as $360 billion of Chinese imports (which includes $110 bln imposed in September and 25% tariffs on $250 bln goods) before Xi agrees to go to sign a partial trade deal, according to people familiar with the matter. That covers 71% of all imports by US from China.

  • Meanwhile, China is reviewing locations in the U.S. where President Xi Jinping would be willing to meet with President Donald Trump to sign the first phase of a trade deal between the world’s two-largest economies, people familiar with the plans said. The decision is now between Alaska and Iowa for the signing location, people briefed on U.S. plans said.

  • The other positive news that could push risk appetite and demand for oil is that Aramco confirmed plans of its IPO in December.

What to BUY? S&P could reach 3 171 by end of the month and RTS above 1500

Global stocks

  • Our year-end target for S&P 500 is 3171 or around 100 points from now which implies limited growth of 3-4%. Hence, we don’t expect major rally but at the same time see risk appetite remaining at place.

  • We see more demand for US oil gas companies and oil service companies. Amongst our favorite list with most upside potential is Devon energy (32%), ConocoPhillips (26%), Halliburton (25%) and Schlumberger (20%).

  • If the deal will be signed and tariffs will be cancelled on 360 bln worth of goods than Brent oil prices could reach 70/bbl facing resistance of 64,57 (200d MA).

  • Asian indices and especially south East Asian countries are lagging behind such as India +4%, S Korea +10% and China +13%. We recommend increasing exposure to those indices via ETFs given that their performance is linked to trade agreement between USA and China.

  • The other undervalued equity indices include Chile, S Africa and Turkey.

  • Our global favorite stock lists include Softbank, TMK,, Yandex, Sberbank, MMK, Tencent and BAT.

Russian stocks

  • Our year-end target for RTS is 1545 or 6% from current levels, our favorite stocks include.

  • Our Gazprom year-end target is 280 rubles driven by new dividend policy to be announced end of November where we expect annual yield to rise to 7,5% from previous 6,3% as dividend yield higher due to increase in dividend payout of 35% and news related to Nord Stream-2. Morgan Stanley revised the recommendation for Gazprom shares; On October 29, Interfax reported that Morgan Stanley analysts had recommended buying Gazprom shares and indicated a 58% upside potential. A week earlier, they recommended holding Gazprom papers. In addition, Renaissance Capital and Citi have the highest stock growth expectations of 39 and 34%, respectively.

  • Our short-term target for Sberbank is 250 roubles matching June 2019 levels supported by rally in ruble which could reach 62,50 if phase 1 deal will be signed and oil prices will elevate further. 12-month price forecasts for Sberbank Rossii PAO have a median target of 19.87$, with a high estimate of 22.13$ and a low estimate of 16.23$. The median estimate represents a +33.12%

  • increase from the last price of 14.93$ while the highest and the lowest account for 48.2% and 8.7% respectively. (Source: CNN Business)

  • We see strong upside in Russian metals and mining stocks that is the only sector that is trading negative YTD especially Alrosa -24%, NLMK -20%, MMK -15% and Severstal -6%. TMK has good upside as we move closer to finalise the deal over sale of its US asset.

Source: ITI Capital