Investors See Power Handover As Real Test

Russia may have voted in a new president this weekend, but investors have long since moved on from thinking about who will be Vladimir Putin's successor.

Sunday's results have been priced in to Russian stocks for some time now, and investors have welcomed the smooth succession and its accompanying stability with open arms. The real test will be, they say, when the handover of power takes place in May.

Russian markets recovered some lost ground early in the week, with the benchmark RTS Index nudging past 2,100 points, but later falling back. February ended with at least some relief for the markets, which suffered their worst month for years in January on fears of a U.S. recession.

The RTS ended the week down 0.75 percent at 2,063.94 points, while the MICEX took a bigger hit of 3.5 percent to close at 1,660.42 points.

"Since the U.S. stabilized, it has been easy for Russia to recover," said James Beadle, portfolio manager at Pilgrim Asset Management. "[But] the market can easily go either way. ... It went up too early for me."

With the elections season over, analysts are hopeful that key reforms, particularly oil taxes, which energy majors have lobbied hard to change, will make it back up to the top of the agenda.

"Once past the presidential election ... we think it likely that reform of the oil taxation regime will move to the forefront," Ronald Smith, head of research at Alfa Bank, said in a midweek note to investors.

Oil stocks, particularly Rosneft, have underperformed the rest of the market in recent months, and some analysts say they are now priced quite attractively.

West Texas Intermediate, the U.S. oil benchmark, surged to an all-time high of $102.08 per barrel earlier last week while Brent also hit a new record above $100.

It puts some things into perspective. In late January, the government raised its price projection for Urals oil for budgetary purposes from $53 to $74 per barrel. But there are fears that the government could face a big hole in the budget should there be a substantial downturn in the oil price.

Elsewhere, Gazprom and SUEK hammered out the details for the creation of a holding that will combine their power and coal assets. The deal did little to boost Gazprom shares on the RTS, however, which edged up 2 cents on the week.

Bread and grain companies emerged as the unexpected plays last week, as wheat prices hit record highs in Chicago trade. Razgulyai, a grain and sugar producer, and Altai Bread both benefited from investor interest.

But things went from bad to worse for VTB, the bank that no one seemingly wants to hold. UBS cut its price estimates for the bank's Global Depositary Receipts, which are traded in London, from $11 to $9, and recommended Sberbank in its stead. The bank cited concerns about the ability of VTB, which is heavily reliant on overseas lending, to tap funding amid poor credit conditions.

VTB's Russian shares fell 7.5 percent on the week to 9.1 kopeks, deepening the gloom for the stock, which has lost one-third of its value since last year's $8 billion initial public offering.