Russia's RTS Index Target Cut at UralSib on Global Stock Rout

By William Mauldin

July 23 (Bloomberg) -- UralSib Financial Corp. lowered its projection for the RTS Index, Russia's dollar-denominated stock benchmark, because of the impact of the credit crunch and the global equities rout.

The Moscow-based bank cut its year-end estimate for the 50- stock benchmark to 2,600 from 3,000. Investors should avoid consumer-related stocks and focus instead on OAO Gazprom, Russia's biggest company, fertilizer companies and the electricity industry.

``The net effect of six months of sustained battering with credit-market losses, record high oil prices, inflation worries and missed earnings targets is that global investor sentiment is shot to pieces,'' Chris Weafer, chief strategist at UralSib, wrote in a report released today.

Overseas fund flows will be limited ``until investors are convinced that the worst of the financial crisis is over,'' the note said. Meanwhile, higher interest rates may limit investment by Russians who borrow money to place bets on the stock market, Weafer added.

About $13 trillion has been wiped off the value of global equities since October as financial companies notched up more than $467 billion in credit-related losses. Banks worldwide have raised $345 billion to offset losses stemming from the financial-market turmoil and slowdown in lending.

`Fairly Ambitious'

In Russia, higher energy costs pushed the inflation rate to 15.1 percent in June and led the central bank to raise its benchmark interest rate by a quarter of a percentage point for the fourth time this year on July 11 to 7 percent.

In the ``best-case scenario,'' Russian stocks will recover with global equities starting in the last three months of the year, while the RTS may reach 3,000 in the first quarter of 2009, Weafer said.

The RTS has dropped 7.3 percent this year to 2,123.66 as of the close July 22, compared with a 17 percent decline for the MSCI Emerging Markets Index.

Weafer and Roland Nash, chief strategist at Moscow-based Renaissance Capital, both said on Dec. 18 that the RTS would rise to 3,000 by the end of 2008. In an interview on July 16, Nash said he is keeping his year-end target for now.

``We still have 3,000, but that's looking fairly ambitious at the moment,'' he said.

In December, Nash favored potash producer OAO Silvinit and Weafer recommended its rival, OAO Uralkali. Since then both stocks have more than doubled in trading on the RTS, as of the close of trade yesterday.

To contact the reporter on this story: William Mauldin in Moscow at wmauldin1@bloomberg.net.