JJ Mois Année Recent market trends RUSSIA June 2009 Wider. Closer. Simpler.
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Transcript of JJ Mois Année Recent market trends RUSSIA June 2009 Wider. Closer. Simpler.
JJ Mois Année
Recent market trends
RUSSIA
June 2009
Wider.Closer.Simpler.
2Société Générale Securities ServicesJune 2009
Investors business unit focus
Several industry Trends may impede industry growth in the near term
Future declining trading volumeShrinking Hedge FundsFinancial Deleveraging likely to accelerateSignificant pressure on Global Equity markets
Recent turmoil is unprecedented and sweeping, resulting in low volumes and issuance
levels in 2009
Anticipation on the largest decline in equity trading for 20 years across a range of
exchanges
Lower levels of new issuance and depressed market valuations drive down fees
Decline in trading volumes and issuance levels
3Société Générale Securities ServicesJune 2009
Investors business unit focusKey trend & drivers
Volumes
Expenses
Products
Competition
• Near term decline in trading volumes– shrinking of mutual fund and hedge fund AUM– deleveraging– capital pressure
• Mitigating factors likely to prevent sharp volume decline– volatility – risk management / risk aversion– regulation– algorithmic trading
• Product diversification becomes increasingly important– maintain trading volumes / get share of OTC market– focus on high margin products
• Cost efficiency required to sustain profitability– benefits of scale
• Industry consolidation will continue– cost efficiency– geographic expansion / emerging markets– product diversification
• Mitigating factors to volume decline include:– Play on the market volatility, algo trading, arbitrage– Risk management / risk aversion / regulation reemphasise the trend in favour of liquid, centrally cleared exchange products
Diversity of exchanges business model would help to improve volumes by promoting new products and services
Focus on cost efficiency and participation in the industry consolidation would contribute to improved profitability given the industry’s high fixed cost component
4Société Générale Securities ServicesJune 2009
Russian capital market landscape
5
-49%
-38% -38% -37%-32%
-19%
-45%-50%
-56%-60%
-9%
7%
-10%
0%
-11%
9%7%13%
5%
22%
-70%
-50%
-30%
-10%
10%
30%
50%
FIG
Mate
rials
Tech
Indu
strial
Cons.
Dir.
Utilit ie
s
Energy
Teleco
m
Cons.
Stapl.
Health
care
2008 2009 YTD
(3.7)
(1.0)
14.43.5
20.3 24.6
54.0
(49.5)
13.0
0.510.9
6.0
(2.5)
7.0
(2.8)
(60)
(40)
(20)
0
20
40
60
95 96 97 98 99 00 01 02 03 04 05 06 07 08 YTD09
Flows Rebuilding in 2009 Dedicated Emerging Market Funds Equity Flows
$ Bn
Source Morgan Stanley Equity Strategy, EPFR Global
Source Bloomberg as of May 2009
Investor Interest Returning to Cyclical SectorsMSCI Europe Sector Performance
%
01
0
4
1514
32
3
0.5 0
7
12
322
0.1
4
0
4
8
12
16
H1
2005
H2
2005
H1
2006
H2
2006
H1
2007
H2
2007
H1
2008
H2
2008
H1
2009
IPO FO
Russian Equity OfferingsSince 2007
$ Bn
Source Dealogic
There has not been any issuance out of Russia in 2009, which is in stark contrast with US and Europe, where issuance YTD is at the level of 2008
Volatility continues to be high globally (VIX is above 30 and RTS 30 day volatility at 44.6)
Following a significant equity funds outflow in 2008, investors are slowly returning to emerging markets with total equity inflows of $13.0 Bn in 2009
Investors’ interest is also returning to cyclical sectors, which suffered greatest losses in 2008
0
500
1,000
1,500
2,000
2,500
3,000
янв 00 апр 08 июл 08 окт 08 янв 09 апр 09
0
30
60
90
120
150
RTS RTS 30d Volatility VIX
Volatility Remains HighSince Jan-2008
pts
%
Source Bloomberg as of May 2009
5Société Générale Securities ServicesJune 2009
Russian equity markets experiencing a rebound
Russian equity market significantly underperformed global indices since the beginning of 2008 following the collapse in commodity prices
• Global financial crisis and recession, compounded with depletion of Russian state reserves following Central Bank’s hesitance to increase the ruble's trading band, contributed to the Russian market underperformance at the end of 2008
Since the beginning of March equity markets globally are experiencing a significant rally, with Russian market outperforming YTD
• Stable Rouble, rising oil prices and Russian CDS decline had a positive impact on the Russian market
• However, RTS is currently trading at the level of November 2005
0
20
40
60
80
100
120
Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09
FTSE 100 S&P 500 Euro Stoxx 50
MICEXRTS
Global Markets Performance Since January 2008
Rebased to 100
60
80
100
120
140
160
180
Jan-09 Feb-09 Mar-09 May-09
FTSE 100 S&P 500 Euro Stoxx 50
MICEXRTS
Global Markets Performance 2009 YTD
Rebased to 100
Russian market fell sharply in 2008, but outperforming European and US markets YTD
Source Bloomberg as of May 2009
6Société Générale Securities ServicesJune 2009
Russian equity markets Positioning of MICEX
Source MICEXSource MICEX
0%
20%
40%
60%
80%
100%
фев.07 Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct
Micex RTS OTC
Structure of Russian Equity MarketTrading Volumes
Feb-07 – Oct-08
Source MICEX
4,212
5,979
1,925
932555281117106
0
2,000
4,000
6,000
8,000
2001 2002 2003 2004 2005 2006 2007 2008
MICEX Trading VolumesAnnual Turnover
$ Bn
Source MICEX
14%16%
24%
33%35%
0%
10%
20%
30%
40%
дек.04 дек.05 дек.06 дек.07 окт.08
Share of Non-residents in MICEX Trading2004 – 2008
%
179
245
364
496 503
81
161193 207
232
0
200
400
600
2005 2006 2007 2008 2009-YTD
Equities Bonds
Number of Issuers on MICEX2005 – 2009
#
7Société Générale Securities ServicesJune 2009
Share of Foreign trading
• Large institutional investors tend to trade directly on local exchanges rather than through intermediaries or foreign exchanges:
– Lower cost
– Wider product offering
– Simplicity / effectiveness
• Significant share of an off shore trading could imply that investors are not entirely satisfied with the local infrastructure or partially precluded from dealing in local securities
Local92.6%
Foreign7.4%
KoreaTop-5 Companies by Market Cap (3)
Local84.4%
Foreign15.6%
ChinaTop-5 Companies by Market Cap (1)
Source Bloomberg
Source Bloomberg
Source BloombergSource Bloomberg
Local92.7%
Foreign7.3%
IndiaTop-5 Companies by Market Cap (2)
Local67.3%
Foreign32.7%
RussiaTop-5 Companies by Market Cap (4)
8Société Générale Securities ServicesJune 2009
Pre-requisites
Minimization of Risk
Cost Efficiency
Simplicity / Transparency
• Centralized trading of a broad range of products
–all classes of securities, indices, derivatives, etc
• Modern technologies
– placement / trading / settlement
• Internationally accepted post-trade practices
– no pre-deposit of funds
– securities lending
– reserve funds / credit assessments
• Direct access to local exchanges
– equal treatment of non-residents
• Consolidated infrastructure
• Investors dealing in Russian shares would welcome a number of changes to the exchange infrastructure that would allow them to minimize trading and settlement risks, simplify trading procedures and reduce overhead costs