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RSX – November Review: The Share Price Driven By Geopolitical Factors
Summary RSX share price declined by 0.12% in November. The geopolitical events had a significant impact on price development of Russian shares in November. The relations between Russia and the EU have improved after the Paris terrorist attacks, the sanctions may be canceled soon. The Market Vectors Russia ETF (NYSEARCA: RSX ) experienced a rollercoaster ride in November. After gaining more than 5% in the first days of November, it started to decline steeply, as the falling commodity prices weighed on Russian companies. After the Paris terrorist attacks on November 13, the Russian share market started to grow, as the relations between Russia and the western countries started to warm up and the idea of a soon end to the anti-Russian sanctions came back to life. RSX was up by 5% month-to-date, when Turkey shot down Russian plane in Syria, on November 24. Turkey is a NATO member and the fears of the consequences of this attack pushed RSX back down and it finished the month almost flat. Sberbank ( OTCPK:SBRCY ) is still the biggest holding of RSX. It represents more than 9% of the portfolio. The weight of Lukoil ( OTCPK:LUKOY ) is more than 8% and weights of Gazprom ( OTCPK:OGZPY ) and Magnit are over 7%. Weights of all of the 4 biggest holdings increased compared to October. Shares of Severstal don’t belong among the top 15 RSX holdings anymore. The steelmaker was replaced by Mail.Ru Group ( OTC:MLRUY ). The 15 biggest holdings represent 77.97% of RSX portfolio. Source: own processing, using data of Vaneck.com Out of the 15 biggest RSX holdings, the biggest gains were recorded by shares of Mail.Ru Group in November. Shares of the e-mail service and interactive entertainment provider jumped by almost 18%. Investors appreciated the acquisition of the map applications maker Maps.Me. Shares of Sberbank , the biggest Russian bank, climbed by more than 9%. The share price was boosted by the information that in October, Sberbank recorded the best monthly financial results since September 2014. The biggest losses were recorded by London listed shares of Surgutneftegas ( OTCPK:SGTPY ) and by the major nickel and palladium producer Norilsk Nickel ( OTCPK:NILSY ). Both of the companies lost almost 9% of value. Source: own processing, using data of Bloomberg The correlation between RSX and oil prices (represented by the United States Oil ETF (NYSEARCA: USO )) changed rapidly in the second half of November, as the political factors started to set the direction of the Russian share prices development. The correlation between RSX and USO touched the -0.6 level at one point, which is a relatively high level of negative correlation. On the other hand the correlation between RSX and S&P 500 remained relatively high for the better part of November. Source: on processing, using data of Yahoo Finance Regarding the volatility, November was one of the calmest months of 2015. The 10-day moving coefficient of variation was moving in the 1.75% – 3.75% level. In the end of the month, it declined back to the 2% level. Source: on processing, using data of Yahoo Finance Some of the more interesting news: Lukoil announced its Q3 2015 financial results. It recorded earnings of $614 million (62% lower compared to Q3 2014), income from operating activities of $1.272 billion (decline by 56% y-o-y) and revenues of $23.418 billion (decline by 40% y-o-y). Sberbank reported that it recorded net income of RUB33.9 billion in October ($510 million) which is its best monthly result since September 2014. Net profit for the first 10 months of 2015 totaled RUB178.3 billion ($2.68 billion). Mail.Ru Group acquired Maps.Me, maker of map applications. Mail.Ru intends to integrate Maps.Me into its my.com platform. The my.com platform was launched in order to expand on the non-Russian markets. Maps.Me should help my.com to expand especially to the USA and to Germany. Yandex (NASDAQ: YNDX ) launched a weather forecasting service based on machine learning technology (Meteum). Meteum should calculate a new weather forecast every time a user consults the service. It should be able to provide weather forecasts on a hyper-local basis (according to the company, forecasts for particular city parts or even for particular buildings will be available). Meteum should be able to keep on improving the accuracy of its predictions as it will compare its forecasts with the actual weather conditions. Polymetal ( OTC:POYYF ) announced very good results of the Kyzyl Gold Project feasibility study. The mine should produce 325,000 toz gold per year over the 10 years of open pit mine operations. After the open pit operations, 12 years of underground mining will follow (270,000 toz gold per year. The average AISC is expected at $630/toz and the initial capex is estimated at $328 million. The after-tax IRR is 27% and NPV (10%) is $538 million at gold price of $1,200/toz. Russian GDP declined by 4.1% y-o-y in Q3 2015. It is an improvement compared to the Q2 decline by 4.6% y-o-y. The 2015 inflation rate will probably increase to 12.8% which is slightly more than the previous estimate of 12.2%. Conclusion After the Paris terrorist attacks, the relations between the EU and Russia started to improve quickly, as some of the European leaders finally realized that Russia is the most important ally in the war with ISIS. The Russian share market reacted by a swift growth, as the likelihood of a soon end to the anti-Russian sanctions has increased. Although the Turkish attack on the Russian plane pushed RSX lower, the Russian reaction on the incident has been relatively mild and the fears of a wider Russia-Turkey or even Russia-NATO conflict turned out to be significantly overblown. Moreover the oil price seems to have a significant support at the $40 level. If it rebounds and starts to move closer to $50, RSX may record some decent gains in December. Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
Market Evolution And The Demise Of Good-Til-Canceled And Stop-Loss Orders
Summary There have been articles in SA recently touting common stocks of some major exchange management firms. These are not stocks for your retired aunt who taught grade school. They are stocks for your cousin who runs a surfing equipment shop on Maui when she’s not on tour. Exchange management is a high tech business where a winner can become a loser in a matter of months. Decisions like NYSE, NASDAQ and BATS’ prohibition of good-‘til cancel orders, beginning in February, show that exchange management is crisis management. This is Part 1, the introduction, of a discussion of winners and losers among the corporations that manage exchange trading, including CBOE Holdings (NASDAQ: CBOE ), the CME Group (NASDAQ: CME ), the Intercontinental Exchange (NYSE: ICE ), NASDAQ Inc. (NASDAQ: NDAQ ), and London Stock Exchange Group, for example]. These articles will analyze “What’s in?”, “What’s out?”, and “Who Knows?” This first article sets the table for those that follow. What’s in? The future of processing securities and futures transactions is very bright, as the cost of entering, clearing, and communicating results of transactions goes to zero and execution approaches warp speed. The future of banking is in making big investment decisions, finding the right financing, the right companies on the investment execution side, and advising investors about participation in the enterprises they sponsor. Some exchange is going to remember that serving the needs of legions of small investors is profitable. That exchange will find a way to create an environment where these traders are not constantly swamped by high speed traders and institutions. What’s out? Places where we see men in brightly colored jackets announcing new issues and ringing a quaint bell at the market open, like the building on the corner of Broad and Wall Street. They are museums and retirement villages – glorified photo ops. Financial institutions as a storehouse for securities and other claims on real wealth. One day soon this will be done globally by a computer the size of your fingernail. Financial institutions as trading intermediaries. That business is low margin, high volume, and independent of strategic economic and financial forecasting issues. Forget foreign exchange, deposit trading, and derivatives trading by banks. Financial institutions will advise users and do the trade that originates the use of these instruments by corporations and investors, but the billions of follow-on trades are soon to be non-bank activities. Exchange corporations that make too many decisions like the one made by Intercontinental Exchange ( ICE ), the owner of the NYSE], the other day, to end GTC and SL. Unless NYSE has more changes in mind than simply those, that was a bad decision. Good exchange decisions will attract traders; bad decisions, repel them. This decision will repel many traders. Who Knows? The future of the thing that we now call an exchange, defined as a localized collection of computer servers that confirm trade execution, like the NYSE now, is in some doubt. The future of the collection of companies listed in the first paragraph above is uncertain. If they depend on markets functioning as they do today, they are zombies. If they see themselves as electronic tech companies, in a race to find the fastest, most secure, means of placing, executing, clearing and communicating transactions, they have a shot at being the king of the world of transactions. There is likely to be only one in the end. And it may be none of the firms listed above, but one of the dark pools that wait to usurp these firms’ dominant position. Or a company that does not yet exist. It will be fun to watch (from an investment-free position.) This series of articles is a warning to investors in these exchange management companies: To forecast the fortunes of the firms above, forget the charts. Forget b and a. Forget forecasts of trends in income, the size of income margins, and the like. These firms are the wildcat oil drillers of finance. They exhibit handsome returns in the past few years. (And wages are high for deep sea divers, if they survive and surface to collect.) As a combined portfolio of shares, the sort of analysis that applies to Google, now Alphabet, Inc., ( GOOGL , GOOG ) or Apple (AAPL] is relevant for these stocks. The future of electronic trading and clearing in the next several years is good. But keep a close eye on new players. Also old players, such as dealers like Goldman Sachs (NYSE: GS ) and the hedge fund, Citadel, that have an unexplained interest in trading technology. But the individual corporations are not so secure. Some of them may not be with us in as few as five years. The changing technology of trading and the jockeying of the combatants are as much fun to watch as a Star Wars battle scene. If your money is not invested in one of the losers. As an aside, here is a list of dark horses: Bank of New York Mellon (NYSE: BK ), State Street Corp. (NYSEARCA: SST ), BATS Exchange, and IEX. My guess is that the ultimate king of the hill will be someone we have not mentioned. It’s human nature. Darwin knew about it. Change in the environment always means the death of old species and the rise of new species. So to resist change is instinctive. It promotes species survival. The human animal hates change. NYSE management hates change. Individual investors hate change. Following articles will expand on the reasons for my picks of winners and losers.