Citi downgrades Russian Equity Market

From a post on Marketwatch, we learn:

From late February Russia’s main index, the MSCI, has more than doubled, powered by a sharp recovery in the oil price and a strengthening of the ruble. Investor sentiment has improved markedly as the risk of a systemic collapse has receded.

As a result, the broker told clients, valuations have risen considerably from March lows not seen since 1988 and “are no longer indicating deeply oversold conditions.”

The sustainability of current oil prices is also a concern. Citi said it struggles to see the oil price rising much further because it believes its recent recovery was more rooted in technical factors and improved investor sentiment than in any radical improvement in the supply/demand outlook.

Now that’s surprising. With the recent announcement by OPEC that set a price target of $75 to $ 80 per barril for crude oil, and the general assumption that oil is going to go up (after all, the economy is back on track again and demand should be rising, according to some) how does that figure? The answer is it doesn’t.

Please note the Citi gives away the whole banker’s bluff about green shoots and recovering economy in just one sentence:

it believes its recent recovery was more rooted in technical factors and improved investor sentiment than in any radical improvement in the supply/demand outlook.

In other words, the rally is based on illusions, not on improving fundamentals.

Here is the real reason, a bit further down in the article:

One of the hurdles to a real turnaround in the economy, the broker said, is the government’s lack of progress on addressing issues in the banking sector. It estimates the need to recapitalize Russia’s main 50 banks at close to $90 billion.

So, the goal is to extract $90bln from the Russian government, i.e. taxpayer. The banks need more funds. The Fed is depleted, so now it’s Russian and the EU that must bleed.

Also, a goal is to force a shakeout in the Russian bank market, as we can learn from this statement in an April 14, 2009 article from AFP:

According to Petr Aven, head of Russia’s largest private bank Alfa Bank, of the 1,000 banks in Russia, just 200 control 90 percent of the assets.

“I support a fundamental reduction in the number of banks. Giving 1,000 banks access to central bank resources is not rational,” he told the Vedomosti business daily this month.

“Of course an economy needs dozens of banks, not just two. But also not 1,000.”

Of course, Petr Aven expects to be one of the remaining banks.
So, the Ponzi-scheme needs new money, which governments need to provide to ever less players. Now it’s Russia’s turn.
Rest assured, that this will still not be enough. They will be back for more.

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