No Russia Correction Amid Global Gloom

Summer may have arrived in Moscow, but ongoing gloom on global financial markets just keeps raining on its parade.

Analysts from the Royal Bank of Scotland, or RBS, delivered perhaps the darkest news of all, predicting a global stock market crash in the next three months.

The U.S. Federal Reserve is in "panic mode," said RBS credit strategist Bob Janjuah in a June 11 note to clients, which became public only last week. "The massive credibility chasms down which the Fed and maybe even the ECB [European Central Bank] will plummet when they fail to hike rates in the face of higher inflation will combine to give us a big sell-off in risky assets."

Inflation is now the No. 1 concern in many countries, and central banks are tussling over which is the lesser evil: high inflation or a slow-down in economic growth. But RBS analysts feared that central banks would commit what it deemed a major monetary-policy error and fail to raise interest rates — the chief tool against inflation in the West — in time.

While many analysts were quick to provide a more upbeat offering to the bank's bleak view, European markets were nevertheless rattled. More bad news was to come in the shape of Morgan Stanley's earnings, which came out worse than expected.

Gloomier still, New York-based hedge fund manager John Paulson predicted that the financial losses — just shy of $400 billion to date — could triple to $1.3 trillion.

While analysts at Alfa Bank have warned of a major correction at home, some Moscow-based investors remained more cautiously optimistic, arguing that aggressive state spending, and the makeup of the commodity-dominated stock markets, would head off any drastic drop.

"It's going to be hard to see a real big sell-off in Russia at $130 per barrel oil," said James Fenkner, managing partner at Red Star Asset Management. "Oil has to come down [first]."

Oil has broken new records — again — to stop just short of $140 per barrel.

It sharply dropped, however, on news that the Chinese government had slapped higher duties on fuel, which some analysts said might curb domestic demand in the world's second-largest oil importer, and that Saudi Arabia had announced a production hike of 200,000 barrels per day.

But analysts argued that there is enough volatility on global markets to shore up oil in the near-term, a view confirmed by militant attacks on oil facilities in Nigeria late last week.

Inflation concerns contributed to a sluggish week on the domestic bourses. "Summer has already come to the Russian markets," said Fenkner, predicting a quiet period through to the end of August.

Most of the movement was in the metals and electricity stocks, while banks and energy stocks — affected by the falling oil price — fared less well.

OGKs, the electricity stocks, started to move toward the end of the week, after upgrades from Alfa Bank and comments from Prime Minister Vladimir Putin on the potential of the sector.

Alexander Kotikov, a utilities analyst at Troika Dialog, said the generating companies had been oversold and were now trading at "incredibly low" multiples.

Investors are only just realizing this, he said.

In Moscow, many metals shares saw sharp weekly gains, including NLMK (10.9 percent), Severstal (7.9 percent), and Magnitogorsk Iron & Steel works, or MMK (5.4 percent). But Chelyabinsk Zinc dropped by 6.2 percent.

Both the RTS and MICEX indexes finished marginally up on the week, after losing some of their midweek gains. The RTS rose by 1.2 percent to 2384.75 points, while MICEX inched up 0.1 percent to 1829.22 points.