Russia is primed for a strong 2019 with a policy-based recovery plan to counter further sanctions, reduce Ruble volatility, and increase the market growth for favored sectors.
Fundamental analysis of RSX's holdings shows not only secured dividend opportunities, but ambitious corporate plans aided by strong balance sheets poised for 2019 growth that should push up RSX's price in 1Q2019.
Key RSX catalysts to watch for in 2019: Potential Kerch Strait sanctions (4Q18-1Q2019), FYE earnings releases (1Q2019), mean reversion of 52W price boundaries (1Q2019), FDI inflows (1Q2019). Aligned political and investor interests create a unique growth opportunity for government-owned and favored "systemically important" companies like Sberbank (7.98% of RSX). "Likely" Kerch Strait sanctions (4Q18-1Q2019) present systemic based price risk for RSX's holdings and should be monitored closely.
Russia's recent recovery has been based on the allocation of gains from higher oil prices, an effective budget surplus, a positive trade surplus aided on a weaker ruble, increased stabilization of geopolitical risk, monetary loosening and increasing optimism on key growth statistics.
We can expect modest, but positive growth for 2019 with GDP forecasts up from 2018's 1.7% to 1.8%. GDP forecasts and macroeconomic stability are largely based on average oil price restabilizing at around the key $65/bbl mark, a maintained budget surplus, controlled inflation around 4%, and a positive trade balance. Stability is further strengthened with new policies on budget constraints at % of revenue.
Oil prices are expected to average $65/bbl in 2019 and increase to $66/bbl in 2020. The current expectations for budget surplus are up from 2018's +0.1% of GDP to +0.3% in 2019. This is significantly better than previous estimates of deficits of 1.0% and 0.5%, respectively. As for inflation, by 2020, Russia's inflation rate is expected to reach its 4% mark, up from its present 2.8% 2018 average.
We are seeing non-tradeable sectors bolstering the economy and further corporate growth increases through positive 1H2018 results, up from a slow 3Q2017.