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. Last Updated: 07/27/2016

Stocks Seen Near the Top of Growth Cycle

Though it charged in like a bull, the first quarter of 2007 has ended with many investors perched upon the fence.

The RTS index closed the quarter Friday at 1936 points, less than 2 percent shy of recovering the 231 points swept away during the recent emerging markets correction, which struck Russia on Feb. 27, the very day the index was forecast to break through the 2000-point milestone.

On Friday, analysts were wary of making the same predictions for this week, even though conditions looked right. Crude oil for May delivery was trading at $65.86 per barrel Friday in New York after the escalating rhetoric against Iran and its nuclear ambitions led the price per barrel to surge by $9.60 in 10 days. But few traders took lasting comfort from this trend, and Alfa Bank said in a note to investors Wednesday that oil was still a "wild card," which could as easily drop if the situation in the Persian Gulf calmed down.

As at the end of every quarter, local banks will be doing a good deal of "window dressing" this week, balancing out their portfolios by ditching sluggish stocks and taking up ones that have fared better.

The adjustments made at Renaissance Capital underscored the move away from commodities and toward industries that thrive off domestic demand, such as construction and consumer goods.

"Regardless of the growing oil price, the situation on the Russian market remains unstable, and investors must therefore show caution," Ovanes Oganisian, RenCap strategist, wrote in a research report. He highlighted the signs of decline in the U.S. economy, particularly its housing market and the weakness of its currency, as posing the biggest risk to growth on the Russian market and around the world.

Indeed, the recent bearishness on U.S. markets, as well as the global correction that struck last month, has led analysts to reassess where the global economy stands in the present growth cycle.

"It's been a huge multiyear rally," Goldman Sachs economist Rory MacFarquhar said. "We are clearly at an advanced stage in this cycle."

According to a Merrill Lynch report this month, 61 percent of global fund managers agree that the cycle that began after the 1998 meltdown, and has been driven by capital generated in emerging economies such as Russia, China and India, is getting long in the tooth.

At such times, stock-picking tends to become more important, as investors are forced to look for pockets of growth in a market tracking sideways on the whole.

The darling of many investment banks this week was food retailer Wimm-Bill-Dann (WBDF), which announced Thursday that its net earnings had more than tripled last year on the back of higher dairy prices and its acquisitions in the highly unconsolidated retail market. The company's stock gained 9.8 percent on the RTS index the day the figures were released.

OGK-1 (OGKA), Russia's largest power producer by installed capacity, saw its stock surge 36.4 percent Thursday after releasing its growth reports for last year, when a frigid winter drove up the firm's output by 8 percent. As the utilities sector thrives on domestic demand, analysts say it is relatively immune to recent pessimism.

Gazprom (GAZP), however, which represents more than one-quarter of the total value of Russian stocks, will enter the second quarter in the red, down 4.3 percent for the first three months of the year.