Recently at the Moscow Stock Exchange building, with the support of the CFA Association Russia, an evening of industry forecasts was held. This long discussion was the first attempt to formulate short-term forecasts for key sectors in the Russian economy for the new year 2015. Leading analysts spoke about the expectations for different sectors, possible sources of financing, investment prospects, and their views of the economic situation during this time of crisis.

 

During the conference Sell-side representatives gave presentations on the prospects for Russian businesses and the state of key economic sectors in 2015.

Whenever oil prices are realistic, a serious fall in GDP has been observed, though this time it has not been as drastic as in the last crisis, when the GDP fell by 8%. Now the drop is seen to range from -3% to -7%. Furthermore, with the fall in oil prices, the ruble may significantly weaken. At the same time, Russia will maintain its current payment balance: it is capable of paying its external debt, it maintains international reserves and a stable income from its import/export operations. This year will be quite difficult, but we haven’t seen any signs that the economy has completely lost its stability.

Neil Withers, CFA

President, CFA Association Russia

“Capital markets and the banking sector”

 

This is not the first crisis that the banking system in Russia has faced. We have learned a lot, and the most serious organizations have successfully made it through past troubles. The reason behind the current situation is not the sanctions but rather oil prices, Saudi Arabia’s fears about Iran, Shell oil in the USA, and electric cars. Taking all this into account, I don’t think that the Russian economy will be able to quickly recover from this shock, but deposit insurance will be covered by the state and the majority of large banks will be sterilized and capitalized.

Alexander Nazarov

Oil and gas sector analyst, Gazprombank

“Prospects for 2015: the oil and gas sector”

 

Projects planned beforehand will allow the oil industry to remain at the 2014 level in terms of production, which is due to the low cost of activity. However, the level of $20 or $25/barrel is critical for us, it hasn’t been reached for a long time. Although the sanctions don’t have a direct influence on this industry, current projects will be delayed and reevaluated, so the effect of the financial sanctions on this industry will become visible in 2018–2019. In these circumstances the Asian markets will become promising, especially Hong Kong.

Alexander Volchkov

CEO, Eastway Capital.

“Prospects for 2015: Transport”

 

The transportation sector, more than any other, depends on the country’s economy, since if the GDP falls, its revenues fall as well. At the same time we’re seeing a drop in freight carrying and the problems with short-distance trains, as well as harsh competition in the air carrier market among Russian and foreign companies. First of all, airlines are in a difficult situation, since their planes were leased in foreign currency, but their revenues are in rubles. Their revenues have decreased as a result of the fall of the ruble and the decline in the number of passengers flying, but their costs have almost doubled. Automobile transport remains the most in demand, but it is provided by a large number of small private firms that compete with each other, which can be confusing, but it keeps prices down. In this regard, key issues for the industry are: the introduction of new logistics systems, optimizing logistics costs for the customer, raising the quality of service, consolidating players in the transportation field, and creating large companies with different transport possibilities and a wider customer base.

Anastasia Zalutskaya

Analyst for the agricultural sector, Neo Center

“Prospects for 2015: Agriculture”

 

Agriculture accounts for around 3.5% of Russia’s GDP. This industry is one of the drivers of the Russian economy, and the Russian state devotes special attention to it (with subsidies, tax exemptions, and import substitution), so its growth has been higher than other industries and even the economy as a whole (around 3% annually). The counter-sanctions and import substitution have played into the hands of this sector: the volume of products that have been forbidden amount to around 10 billion dollars, and at the same time some branches of the industry have received additional state subsidies (around 3%). The main trends of agriculture in 2015 will be optimization of production capacity on the part of producers, limiting access to credit, a gap and delay between payment of interest on credit and receiving subsidies, an increase in projects’ investment budgets, and the rising cost of food.

Dmitry Glushakov, CFA

Analyst, Alfa-Bank

“Prospects for 2015: mining and metallurgy”

 

Mining and metallurgy will only benefit from the crisis thanks to the increase in exports. Furthermore, the internal market is contracting, prices are becoming significantly lower than export prices, and the share of exports is growing. In 2015 we can expect growth in the main indicators of all companies and stable payout of dividends to clients.