Utilities, Precious Metals, Real Estate, Canada, France are among the worst

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Emerging markets are going through the spike in risk appetite mainly driven by strong performance of commodities exporters where many of them are bouncing off their trough levels. Importers such as China and India markets have been lagging. But even in China and India materials sectors have been among the best performing vs. other sectors. Russia is set to continue farther in our view. China looks fragile, it is one of the rate markets which is down YTD. But nevertheless its likely to maintain stability. South Africa looks quite upbeat. Korea looks subtle anticipating further Chinese weakness. But enjoying QE from Japan India, is preparing for second leg in its 2 year rally. Turkey is likely to sustain growth. Brazil is set to benefit when political pressure dissipates. Investors are frontrunning that. Australia markets will enjoy rebound in commodities markets Canada is likely to benefit from commodities revival. Russia has been severely battered in 2014. Yet last year it was one of the best emerging markets, standing pretty firmly whereas most other emerging markets tanked. What will be the dynamics of the Russian market in 2016? Sentiment towards Russia remains quite grim, and there is no reason to assume that overnight hordes of investors will be piling up in Russian assets. The country is in its pre-election mode. 2016 is the year of elections in the Russian Duma, Russia’s lower house, while customary election years are normally bad for the markets. Dollar is likely to remain strong and it is unlikely that the oil price will be a supporting factor, while the geopolitical risk premium will remain a discounting factor in 2016. Despite the grim forecast there are investors who will be making bargains while the risk appetite remains at the bottom. They will argue that the ruble devaluation has created significant advantages in some sectors of the Russian economy, that the country remains quite inexpensive as opposed to other emerging markets. These investors will also argue that Russia will eventually lose its pariah state status when sanctions get lifted. What will international investors be buying? Most probably there will be a temptation to buy into stocks and sectors of “the new economy”: Internet, communications and technology stocks, consumer names and financial infrastructure companies. There will also be investors favoring companies that are up for privatization as this event could be a significant price-moving factor. There will also be major shareholders buying back their stock and some will decide to tag along. While it could be quite difficult, it could also make sense to try and catch up the moment when the ruble starts to grow. Finally, somewhat beaten up but nevertheless always relevant is investing in infrastructure. Browsing through the names in the new economy sectors, investors are likely to start looking for safer names with little or no political risk. Therefore they will attempt to invest in the state-owned stocks in telecommunications and the consumer goods sector, such as the Moscow Exchange, Rostelecom and Aeroflot or looking to position in Mail.ru, Dixy and Megafon where they can enjoy some protection in case of a new asset reshuffle.