Quotes are falling in chorus – Newspaper Kommersant No. 177 (7378) of 09/26/2022

The fall last week affected not only Russian, but also Western stock markets. Moreover, the US and European indices are steadily declining for the second week in a row, only slightly behind the Russian one. The expectation of further sharp steps by the Fed and the beginning of a recession in the world are forcing investors to leave risky assets, reorienting themselves to protective US sovereign bonds. But the Russian market no longer follows the movement of the West in everything, although the growth of inflation in the world and the fall in oil prices are reflected in it.

The Moscow Exchange Index was not the only stock indicator that ended the past week with a decline (see Kommersant dated September 23). On Western stock exchanges, the fall continues for the second week in a row. During this time, the DJIA has lost 8%, falling back to lows since November 2020. The S&P500 and NASDAQ Composite indexes lost 9.2-10.5%, returning to mid-June levels, DAX lost more than 6%, FTSE – 4.5%.

Data from Emerging Portfolio Funds Research (EPFR) also indicates a decline in risk appetite among international investors. According to the results of the reporting week ended September 22, the net outflow from the funds of developed countries amounted to $8.7 billion. At the same time, investors increased their investments in US government bonds. For the week, the net inflow of funds to US Treasuries amounted to $6.4 billion, and since the beginning of September – $23 billion.

Sell-offs are taking place on global markets as interest rate hikes, primarily in the US, are taking place in parallel with recession expectations. As Valery Yemelyanov, an expert on the BCS World of Investments stock market, notes, investors exit risky assets (stocks, raw materials, long bonds) and shift to short loans from the US Treasury: “This is the most reliable tool in the world, and in the current conditions it is also the most profitable as the dollar rises against the majors.”

The DXY index (the exchange rate of the dollar against the six leading world currencies) last week exceeded 113 points, the highest since April 2002. Since the beginning of the month, the dollar has risen in price by 4%, and since the beginning of the year – by almost 18%. According to Sergey Suverov, strategist at Arikapital Management Company, against this background, in the United States itself, the stock prices of medium and small technology companies fell the most, primarily with low or negative current cash flow. According to TRINFICO portfolio manager Yuri Grossman, companies in the consumer sector, utilities, and drug manufacturers sank less than others.

At the same time, the US financial regulator recently made it clear that it is ready for multiple rate hikes. According to Valery Yemelyanov, this makes US bond yields even higher and the dollar stronger. An expensive dollar and a high rate put pressure on exports and production in the United States, but otherwise it is not possible to suppress inflation, that is, “the Fed deliberately provokes a recession and thereby extinguishes economic overheating,” the expert notes.

Strengthening recession risks in the West and the growth of the dollar index had a negative impact on oil prices, Brent quotes fell to $85 per barrel, the lowest since the beginning of the year. According to Sergei Suverov, this is one of the depression factors for the Russian stock market, especially for oil companies, which also suffer from a strong ruble.

However, Yuri Grossman believes that the impact of the recession on energy prices is overestimated. The potential decline in GDP in developed countries and slowdown in developing countries is much lower than oil volatility caused by negative economic expectations, so on average oil prices will not differ much from current ones in the next couple of years, he said.

According to Valery Yemelyanov, if the trend towards the strengthening of the dollar and the rollback of quotations of commodities continues, then we can expect a fall in the Russian market by another 15-20%. In addition, according to Yuri Grossman, with the introduction of sanctions, costs are growing significantly in almost all industries. To a certain extent, he adds, the development of the Russian economy will be affected by global inflation, as imports, which have already risen in price due to lengthened supply chains, will become even more expensive.

Under these conditions, according to Sergey Suverov, demand in the domestic market can shift pointwise to the “defensive industries” of food retail, telecommunications companies and the electric power industry. These industries, the expert believes, are minimally dependent on raw material prices, have stable domestic demand and benefit from a strong ruble.

Vitaly Gaidaev, Dmitry Ladygin