Investment Outlook Second Quarter 2020 Update
Mar 31, 2020
Investment Summary
- Probably deepest economic contraction since 1930s, but may be brief due to large policy support;
- Coronavirus can and likely will be controlled based on experience of China and S. Korea;
- Unprecedented monetary/fiscal response globally;
- Markets usually hit their low 3-4 months before recessions end;
- The market could have already bottomed or might bottom by end-May;
- Second virus wave Autumn/Winter - equity markets might experience a second down leg;
- Oil 30/40/50 bear/base/bull cases with 30%/40%/30% probabilities;
- According to our estimates, the current ruble exchange rate of about 80 rubles / $ is already priced-in a bear case of $ 30 / barrel;
- At the same time, the current level of the key interest rate (6%) does not reflect the bear case with oil prices of $ 30 per barrel and may rise.
Investment Preferences
- We are OW Russian equities, EW Russian hard-currency debt, OW GEM Debt and UW RUB debt;
- We like Steel, Fertilizer, Agriculture, Real Estate and Utilities within Russian equities;
- We are neutral on base / precious metals and banking;
- We prefer to be underweight oil & gas in the current environment.
Full version of the report could be found attached.
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