Russian Market Monthly Review

Strategy

September 4 2014

MidLincoln Research

Global Investment Strategy with focus on Emerging markets

Key Index performance

	12 months	YTD	1 month
RTS Index	-8,32%	-14,28%	-2,32%
MSCI Russia	-9,66%	-14,79%	-1,52%
MSCI GEM	16,01%	11,97%	2,62%
MSCI World	16,84%	6,09%	2,52%
MSCI BRIC	15,00%	6,73%	1,28%

August Index Performance

Index	Last	Wk ChPct
Ibovespa Brasil Sao Paulo Stoc	61288.15	9.69
Warsaw Stock Exchange WIG Tota	51868.77	3.70
Mexican Stock Exchange Mexican	45628.09	3.47
S&P 500 Index	2003.37	2.89
S&P BSE SENSEX Index	26638.11	2.87
Dow Jones Industrial Average	17098.45	2.35
MICEX Index	1400.71	1.65
S&P/TSX Composite Index	15625.73	1.59
Jakarta Stock Exchange Composi	5167.18	1.54
FTSE 100 Index	6819.75	1.32
Shanghai Stock Exchange Compos	2227.1	1.16
Hong Kong Hang Seng Index	24865.59	0.44
Korea Stock Exchange KOSPI Ind	2067.93	-0.39
FTSE/JSE Africa All Share Inde	50959.02	-0.97
Nikkei 225	15459.39	-1.03
Russian Depositary Index USD	1404.78	-1.61
Borsa Istanbul 100 Index	80312.94	-2.24
Russian Trading System Cash Index	1190.23	-2.31
Karachi Stock Exchange KSE100	28567.74	-5.76

August Currency Performance

Currency	Last	Wk ChPct %
USDRUB	37.1189	4.00
USDPKR	101.7762	3.01
USDEUR	0.7621	1.99
USDJPY	104.19	1.32
USDTRL	2160800	0.73
USDINR	60.515	-0.07
USDCAD	1.0873	-0.11
USDAUD	1.071	-0.47
USDCNY	6.1415	-0.52
USDZAR	10.6567	-0.60
USDBRL	2.2359	-1.25
USDKRW	1014.39	-1.30
USDNOK	6.2002	-1.52

August Commodities Performance

name	units	Price	Week Change %
ICE ORANGE JUICE CONC	USD/LB.	150.05	8.73
CBOT WHEAT	USD/BU.	563.50	6.37
CME ETHANOL	USD/GAL.	2.03	5.18
NYMEX NATURAL GAS	USD/MMBTU	4.04	4.94
ICE COTTON #2	USD/LB.	66.57	4.85
CME LUMBER	USD/TBF	343.90	4.85
ICE COFFEE "C"	USD/LB.	201.20	4.76
CBOT OATS	USD/BU.	342.25	4.11
ICE ECX EMISSIONS	EUR/MT	6.41	3.72
PALLADIUM SPOT	USD/T OZ.	906.50	3.28
EURO SPOT	EUR/T OZ.	980.44	1.99
BRITISH POUND SPOT	GBP/T OZ.	775.40	1.77
JAPANESE YEN SPOT	JPY/T OZ.	134034.19	1.34
TOCOM GOLD	JPY/G	4308.00	1.17
ICE COCOA	USD/MT	3229.00	1.00
CBOT SOYBEAN MEAL	USD/ST	350.70	0.63
GOLD SPOT	USD/T OZ.	1286.52	0.04
TOCOM CRUDE OIL	JPY/KL	67170.00	-0.03
COMEX GOLD	USD/T OZ.	1287.10	-0.06
INDIAN RUPEE SPOT	INR/T OZ.	77888.38	-0.50
NYMEX HEATING OIL	USD/GAL.	286.28	-0.60
CBOT CORN	USD/BU.	364.75	-1.49
TOCOM KEROSENE	JPY/KL	82210.00	-1.50
ICE GASOIL	USD/MT	871.50	-2.00
CME FEEDER CATTLE	USD/LB.	216.73	-2.21
CBOT ROUGH RICE	USD/CWT	12.67	-2.39
CRUDE OIL (BRENT)	USD/BBL.	103.26	-2.85
JAPANESE YEN SPOT	JPY/T OZ.	2028.14	-3.56
CRUDE OIL (WTI)	USD/BBL.	95.87	-3.66
TOCOM SILVER	JPY/G	65.20	-4.12
CME LIVE CATTLE	USD/LB.	151.43	-4.58
US DOLLAR SPOT	USD/T OZ.	19.47	-4.79
COMEX SILVER	USD/T OZ.	19.48	-5.02
INDIAN RUPEE SPOT	INR/T OZ.	1178.85	-5.32
ICE CANOLA	CAD/MT	419.80	-5.49
CBOT SOYBEANS	USD/BU.	1024.25	-5.56
CME LEAN HOGS	USD/LB.	98.13	-6.36
ICE SUGAR #11	USD/LB.	15.49	-6.46
TOCOM RUBBER	JPY/KG	195.90	-6.76
RBOB GASOLINE	USD/GAL.	263.12	-7.40
CBOT SOYBEAN OIL	USD/LB.	32.14	-12.38

August Bond Rates Performance Change in btps

country	yield	1m	1y
INDIA	8.56%	6	-5
SOUTH KOREA	3.03%	-2	-50
JAPAN	0.49%	-4	-22
SWITZERLAND	0.41%	-10	-63
GREECE	5.71%	-13	-448
HONG KONG	1.80%	-14	-49
CANADA	1.99%	-16	-62
NEW ZEALAND	4.05%	-18	-48
SINGAPORE	2.24%	-19	-40
UNITED STATES	2.34%	-22	-44
AUSTRALIA	3.29%	-22	-61
MEXICO (USD)	3.17%	-25	-81
BRITAIN	2.37%	-26	-40
ITALY	2.43%	-26	-197
GERMANY	0.89%	-28	-97
SPAIN	2.22%	-29	-231
FRANCE	1.25%	-30	-122
NETHERLANDS	1.05%	-30	-123
PORTUGAL	3.18%	-39	-351
BRAZIL (USD)	3.75%	-43	-97

August Best and Worst

Russia

Stock	Last	Month Ch Pct
Evraz	112.80	16.41
Rostelecom OJSC	99.00	12.83
RusHydro JSC	0.69	12.53
Moscow Exchange	63.50	11.97
AK Transneft OAO	81499.00	10.63
TMK	88.38	9.17
Inter RAO JSC	0.01	8.31
TMK OAO	9.79	8.06
Tatneft OAO	228.00	7.88
Gazpromneft	141.45	6.35
Mail.RU	26.85	-10.26
Sistema JSFC	22.75	-8.56
Aeroflot	46.73	-7.74
Yandex	28.43	-6.70
AFK Sistema	37.72	-4.08
NovaTek OAO	100.60	-3.18
Sberbank of Russia	55.13	-3.16
VTB Bank OJSC	0.04	-2.78
Rusal	4.03	-2.66
Tinkoff CS	5.30	-1.85

YTD Best and Worst

Stock	Last	Ch Pct YTD
MMC Norilsk Nickel OJSC	7230.00	33.74
RusHydro JSC	0.69	21.97
Severstal OAO	359.50	14.16
Tatneft OAO	228.00	10.62
Surgutneftegas OAO	27.20	5.14
Lukoil OAO	2055.00	2.44
AK Transneft OAO	81499.00	-4.79
Gazprom OAO	131.95	-5.07
Inter RAO JSC	0.01	-7.70
Rosneft OAO	226.00	-8.80
FGC UES JSC	0.05	-39.62
Sberbank of Russia	55.13	-30.73
Sistema JSFC	22.75	-29.06
Sberbank of Russia	73.21	-27.26
NovaTek OAO	100.60	-25.59
Uralkali OJSC	133.57	-22.56
VTB Bank OJSC	0.04	-21.95
TMK OAO	9.79	-14.91
MegaFon OAO	28.30	-14.81
Mobile Telesystems OJSC	18.45	-14.27

August - 2014

Russian Market Review

Russian stocks lost 2.3% in August measured by the RTS index adding on volatility as newsflow around events in Ukraine escalated.

Ruble lost 4% and finished the month at 37.1RUB per USD.

Brent oil price lost 2.8% and reached the lows of this year at 103.2$/bbl

Russian sovereign Eurobonds yields widened by 30btps from c.4.8% in July to trade around 5.1% level in the end of August for Russia 30 in USD. Russia 10 in Rub traded down from around 9.5% in July to 9.9% in August. Liquidity further deteriorated as Mosprime 3 m rate climbed from 9.6% in the end of July to 10.2% in August.

YTD best sectors in MSCI Russia universe remain materials stocks propelled by Norilsk Nickel. While the worst sectors are financials and telecoms.

Best Stocks in August

Evraz +16.41%, Rostelecom OJSC +12.8%3, RusHydro JSC+ 12.53, Moscow Exchange +11.97, AK Transneft OAO 10.63%, TMK+ 9.17%, Inter RAO JSC 8.31%, Tatneft OAO +7.88% and Gazpromneft +6.35%

The worst stocks in August

The worst stocks included Mail.RU -10.26%

Sistema JSFC -8.56%, Aeroflot -7.74%, Yandex -6.70%, AFK Sistema -4.08%, NovaTek OAO -3.18, Sberbank of Russia Pref -3.16, VTB Bank OJSC-2.78%, Rusal-2.66% amd Tinkoff CS -1.85%

On the political front

In August the war in Eastern Ukraine escalated as

Russian humanitarian convoy mysterious mission was completed. A squad of Russian paratroopers has been taken hostage in Eastern Ukraine and Ukraine accused Russia of involvement. It looked as if in the end of August separatist forces in Ukraine gained some advantage , while the month ended with slightly calme rhetorics as Ukrainian president announced a ceasefire what looked like it was supported by Russian president.

It looks like both sides the Ukrainian army as well as separatists including Russian volunteers as well as possibly regular forces suffered substantial man loss in August. Russians continue to destabilise in Eastern Ukraine to guarantee Ukraine non-block status re: Nato and to delay Crimea dealings. While Ukrainians are left with very few options to preserve their Oligarchic State.

Meanwhile heating season is near and some acceleration of diplomacy is expected on the back of that.

Some Political new headlines for August include:

German economic growth to be hit by Ukraine crisis, Ifo head says/.../Q&A:

Why Sanctions Won't Upend Russia's Debt Repayments

Ukraine forces destroy most of a column of Russian military vehicles .../.../Russian Prime Minister Dmitry Medvedev's Twitter Was Hacked/.../Russian sanctions start to bite as growth forecasts are downgraded/.../Russia set for recession, but opportunities abound/.Sanctions Hurt Putin's Hold on Power/.../EMERGING MARKETS-Russia's debt insurance costs rise, stocks ..

Angela Merkel calls for Ukraine truce and urges strict controls on .../.../McDonald's Won't Be Banned in Russia, /Shrinking Russian economy adds to fears of full-blown recession/ Economist Says Food Ban 'Certainly Against Russian ...

Ukrainian President Says Europe's Security Depends on Stopping .../.../Russian Prime Minister Dmitry Medvedev's Twitter Was Hacked/.../Western Sanctions And Rising Debts Are Already Strangling The .../Russia hungry to punish the West/.../No confusion over Russia exports ban-/.../The Price of Oil Crushed Russia Once. Is It About to Happen Again?/.../Western Sanctions And Rising Debts Are Already Strangling The

Economic events in August

Russia Unemployment Rate Unchanged in July

Russian jobless rate remained stable at 4.9 percent for the second straight month in July of 2014. It is the lowest rate in more than eleven years.

Russia Trade Surplus Deteriorates Sharply in June

Russian trade surplus narrowed 24 percent to USD 13.97 billion in June of 2014 from USD 18.28 billion reported in previous month as exports decreased 8 percent and imports grew 3 percent.

Russia's GDP Growth Slows to 0.8% in Q2

Russia’s economy expanded 0.8 percent year-on-year in the first three months of 2014, slightly below 0.9 percent increase in the previous quarter, preliminary data from the Federal Statistics Service showed.

Russia Inflation Rate Decelerates Slightly in July

Russian annual consumer inflation declined to 7.5 percent in July of 2014 from 7.8 percent in the previous month, driven mostly by lower cost of electricity, gas and other fuels.

Raises Key Rate to 8%

Russian central bank hiked its benchmark one-week repo rate by 50 bps to 8 percent on July 25th, aiming to curb high inflation caused by geopolitical tensions. Policymakers also said that the interest rates could rise further if high inflation risks persist.

Industry Highlights

Telecoms

ROSTELECOM FINANCIAL RESULTS UNDER RAS FOR THE ...

ROSTELECOM ANNOUNCES ITS IFRS FINANCIAL AND ...

Mobile TeleSystems OJSC Downgraded by Deutsche Bank to "Hold ...

5 Stocks With High Net Profit Margin: Mobile TeleSystems OJSC ...

VimpelCom Profit Falls 83% on Refinancing of Italy's Wind

Russia's Mobile TeleSystems Cuts 2014 Sales Forecast on Ukraine

TeliaSonera may sell Megafon due to Nordic focus, sanctions

Goldman Downgrades Yandex, MegaFon, MTS

Mail.ru says Russian economy increasingly challenging, cuts targets

Goldman Downgrades Yandex, MegaFon, MTS