The CFA Association (Russia) held its annual main dinner, the Forecast Dinner, at the Tchaikovsky restaurant.
While the dinner took place, its speakers made recourse to classic quips like "Prophesy is a good line of business, but it is full of risks" and for the most part they preferred to refrain from making forecasts and talk instead about their current professional concerns.
The dinner went hand in hand with an intense schedule of events, and Vladimir Tutkevich rightly called it "intense": even the Central Bank representative Sofia Donets – and at the Central Bank they work around the clock – found it a challenge to speak about her predictions at 11 o'clock in the evening.
On this "night of predictions", George Orlov, head of FI for EBRD Russia, choose to share his thoughts about what is going on with the banking system in Russia today. As he sees it, "The system is still alive, banks are still holding on, though clearly they aren't going through the best times. The cleanup continues, and in my opinion it's the right thing, but it's costing the state a lot; already one trillion rubles have been lost. The quality of banks' asset has declined since 2013. They are facing problems finding sufficient capital, and banks' profitability has fallen due to various factors."
Orlov recommended that banks take a calmer, less risky path by focusing on risk management, which should be "smart" like never before. They shouldn't chase after the crowd – here he pointed to the example of Transaero – and they shouldn't rush into new investments. As the banker summed up his outlook, "They should store up reserves, as the crisis might be a long one. The banks which adapt to these factors will be able to save their business."
Nitin Mehta from the CFA Institute's EMEA Region put the investment industry under the microscrope, although he forgot about making a forecast, quoting Mark Twain's line "Prophesy is a good line of business, but it is full of risks". There clearly weren't enough forecasts from the first two speakers, so when Antal Russia managing director Michael Germershausen took the stage, CFA Association (Russia) president Neil Withers tried to provoke him and turn the discussion back towards making forecasts: "Tell me, Michael, will I still have a job next year?" According to Germershausen and Antal Russia, this year 46% of companies plan to raise salaries, though Russian companies will do this somewhat reluctantly. Only 29% of companies plan to cut salaries.
Energy industry expert Dominique Fache, general director of RTF and a former director of Schlumberger, offered some advice to oil, energy, and all Russian companies in general, which even entailed a forecast: "They need to make a choice: either football or science. Try science first…" He sees science and universities as underfunded, especially when it comes to the private sector. "Several institutions have been set up in Russia, but there's no innovation," Fache said. "There are no small and mid-sized companies that are making innovations. In the big companies there's too great a distance between their head and their feet, when innovation is really a matter of flexible solutions." He repeated: one must find a new wave, new young people, who will promote innovation in Russia.
Tatyana Safonova from KPMG, to avoid the wearying concept of "prospects", dived into the matter of derivatives. She nevertheless offered a few suggestions: in the near future, the number of trades with derivatives will sharply increase, and even small companies will make them. The volatile state of hedging transactions will grow more and more difficult, they will become increasingly risky. As Safonova explained, "Soon we'll see many trades with structured deposits. They should also, though they can't for various reasons, develop credit default swaps, as well as weather derivatives, since the latter are in a sluggish state due to the lack of tax legislation."
Russian Central Bank economist Sofia Donets was cautiously optimistic: she believes that downward trends, increased volatility, and falling prices dominate at the moment. By the end of the year, Russians' salary expectations will still be in the red zone, but at lower levels than in 2015.
As Donets reminded those present, "In 2015 two trillion rubles of oil and gas revenues were lost from the budget, and this year two trillion more have been lost, so it's four trillion rubles total. This hole is equal to the size of all other reserves." She suggested that in this ever more difficult situation, the Ministry of Finance could take one of four courses: "The first and best choice is to wait for oil prices to rise. Fortunately, our colleagues from the Ministry of Finance don't rely on it so much. A second option is to increase the tax burden, especially on sectors. The third is to use other sources of borrowing to allocate federal loan bonds, and privatization could be somewhere out there, too. The fourth and most promising path is to cut spending. This is the only smart way to go."
With regard to Central Bank policies, Donets warned listeners, "We will be tight for at least the next 18 months or two years – take your own guess – as long as inflation doesn't reach 4%." In addition, according to this regulator representative, the end of 2016 and the first half of 2017 will be a good time for careful and patient investors, who spend a lot of time on analyzing and carefully choosing sectors to invest in. This will also be a time of renewed lending, both in the corporate sector and in the consumer sector.
Ivan Ilushin, Head of Research, VTB Asset Management, dared to give listeners some concrete predictions. He believes that over the next months, the market will reach a turning point. Ilushin also believes in the Central Bank's forecast that inflation will be in the region of 4% in 2016. According to this expert, what is happening now in Russian shares will happen in ETF funds or global funds, which choose from a very small set of high-quality liquid securities without paying attention to small-cap companies, and here there is obviously room for growth. Some of his more specific predictions were: managers conservatively forecast that oil will stay at $45 this year, and for 2017 it will be $52. Dividends from Russian stocks will be in the region of 4%, while the ruble fixed income for the next year, in this manager's opinion, will be restored.
(By Daria Maslova Finbuzz.ru)