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JJ Mois Année Recent market trends RUSSIA June 2009 Wider. Closer. Simpler.
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Société Générale Securities Services June 2009 2 Investors business unit focus Several industry Trends may impede industry growth in the near term Future declining trading volume Shrinking Hedge Funds Financial Deleveraging likely to accelerate Significant 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
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Société Générale Securities Services June 2009 3 Investors business unit focus Key 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
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Société Générale Securities Services June 2009 4 Russian capital market landscape 5 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 Sectors MSCI Europe Sector Performance % Russian Equity Offerings Since 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 Volatility Remains High Since Jan-2008 pts% Source Bloomberg as of May 2009
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Société Générale Securities Services June 2009 5 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 Global Markets Performance Since January 2008 Rebased to 100 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
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Société Générale Securities Services June 2009 6 Russian equity markets Positioning of MICEX Source MICEX Structure of Russian Equity Market Trading Volumes Feb-07 – Oct-08 Source MICEX MICEX Trading Volumes Annual Turnover $ Bn Source MICEX Share of Non-residents in MICEX Trading 2004 – 2008 % Number of Issuers on MICEX 2005 – 2009 #
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Société Générale Securities Services June 2009 7 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 Korea Top-5 Companies by Market Cap (3) China Top-5 Companies by Market Cap (1) Source Bloomberg India Top-5 Companies by Market Cap (2) Russia Top-5 Companies by Market Cap (4)
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Société Générale Securities Services June 2009 8 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
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