"For the first time in a long time, we're putting the stock market on buy"

The key rate may rise in the near future, but stocks are again becoming an attractive financing instrument, especially in the oil and gas industry and IT, Stanislav Kleshchev, investment strategist at VTB My Investments brokerage, told Izvestia on the margins of the VTB investment forum "Russia Calling!". Interest is aroused by substitute currency bonds, as well as gold. The analyst's advice - in his interview to Izvestia.

- In today's situation, many decisions in the economy are made taking into account a rather high key rate. In your opinion, how will it change in the coming year?

- The key rate is the Central Bank's reaction to inflationary processes in the economy. And then it is a factor affecting investment and business activity.

From this point of view, unfortunately, the trends are still negative, and pro-inflationary risks remain high. According to our observations, inflation may accelerate by the end of the year, and in December there will probably be another rate hike to 23%. The rate may remain at this level until the end of 2025.

In our view, the credit tightening cycle is not over yet. We have a more conservative view on inflation than the Central Bank, primarily due to the weakening of the ruble, which we have been observing since September. A lot will depend on how quickly the exchange rate normalizes and at what levels.

It is hard to say when the cycle will turn and the Central Bank will cut the rate. It is unlikely to happen in the first half of 2025. But by the end of the next year, the positive aspects may become more pronounced than we currently expect.

- Recently, banks have become more active in talking about investing in gold. This is a rather conservative instrument. Does it make sense to invest in it now?

- Let us remember why we are all talking about gold. First, it is an asset available to a wide private investor. Secondly, it has shown the best dynamics this year - it has grown one and a half times since January.

In this sense, few things can compare with it. Shares showed minus 18%, fixed coupon bonds also went into negative territory on the background of the key rate growth. Bank deposits show a good yield - more than 20% per annum, but this is incomparable with 50% for gold.

Gold is one of the few quasi-currency instruments that remain with mass investors. This is the reason for its popularity. However, if we look fundamentally at the dynamics of gold and historical averages of profitability of gold miners, this asset can hardly be called undervalued now. In a normal cycle, the profitability of producers is 10-20%, and now it is as high as 30%. These levels look extreme and are unlikely to persist for a long time.

That said, gold continues to rise. It is influenced by the cycle of interest rate cuts by global central banks, high geopolitical risks and changed investor opinions and sentiment. While in 2022-2023 they were mainly selling gold, since spring of this year they started buying.

Gold may also show higher price levels next year. Therefore, it makes sense for a Russian who is concerned about currency risks to keep part of his portfolio in gold.

- What trend do oil prices show and how much do they affect the investment climate now?

- For oil next year we expect a relatively stable average annual level, but high price volatility during the year. For macro-forecasting this is unimportant, because average figures are important, but for speculators, those who follow the markets, ups and downs are extremely sensitive. They affect both the exchange rate and the attractiveness of shares in the respective sectors. In general, we expect the oil price level to be stable.

In our view, supply growth may outpace demand growth, so OPEC+ may need to adjust its actions to prevent an oversupply of oil on the market and a drop in quotations. The delays in lifting the restrictions imposed back in the fall are being extended, and OPEC+ countries will not return to previous production levels in 2025.

- What should investors pay attention to when building a portfolio in 2025?

- We are always in favor of diversification. We see attractive conditions in the replacement bond market, although double-digit yields probably won't last long. In the next three years, almost half of all this replacement debt will mature. There is a risk of a reduction in available currency instruments in the Russian infrastructure, and this should support demand from investors who want to lock in yields in dollars, euros or sterling for a long time. Right now, demand is elevated.

In the ruble segment, we are still focused on OFZ-floaters, i.e. government bonds whose coupon is linked to money market rates. But we are already starting to look at corporate bonds with a fixed coupon, the yield on which exceeds our expected interest rate peak of 25-29%. These are short, for one or two years, bonds of reliable issuers with rating not lower than AA.

For OFZs, the key question for investors is when to buy long bonds in order to lock in high yields for a long period of time. We are of the opinion that long bonds are not interesting now - the final yield in 2025 on them will be noticeably lower than on floaters. And if the key rate continues to rise, long bonds may be unprofitable. Floaters remove this risk.

- What can be said about corporate ruble and local currency bonds? What kind of yield dynamics do they show?

- We are waiting for the substitution of sovereign Eurobonds of the Ministry of Finance - this is an opportunity to enter them at better prices. Interestingly, unlike corporate bonds, the Ministry of Finance bonds have a high nominal value - not $1 thousand, which is available to a retail investor, but 100-200 thousand in the currency of the nominal value. That is, the most interesting opportunities will be for large capital or investment fund shareholders with the appropriate strategy.

For a small investor it is advisable to look for an opportunity to wagering in specialized funds or hope for lower prices in corporate currency bonds.

- Speaking of equities, which sectors are growing now and where is it interesting and profitable to invest?

- In 2025, we suggest focusing on two areas. The first is the oil and gas sector, which traditionally trades at one of the lowest multiples.

The second sector is IT. The key trend for it is import substitution. The departure of external providers and suppliers of various IT solutions has freed up a huge niche, which is now being rapidly occupied by Russian manufacturers. And this is a long-term trend, it is fueled by both money and ambitions of domestic companies.

Therefore, the combination of the traditional oil and gas segment and the new economy in the form of the IT sector is, in our opinion, an ideal solution for next year's portfolio.

- Is IT in its entirety or can you single out some promising segments in it?

- We single out software manufacturers in the first place. They are very much benefiting from the withdrawal of foreign players, the rapid pace of business growth due to the shift of the economy to the virtual segment and the need for digital protection. Large public and private customers demonstrate a high demand for such IT solutions. This trend will only intensify.

- What other investment instruments may be interesting next year?

- One should in any case look for opportunities for diversification. But stocks are now trading almost at the level of March 2022 and look very cheap. If an investor forms a portfolio with a horizon of at least one year, we recommend buying them, despite the high rates.

Perhaps these are the main points of our strategy. The first is the key rate forecast, which differs markedly from the market consensus. The second is the positive sentiment on equities. For the first time in the last few quarters, we are putting the stock market on a buy. We had a very cautious approach before, and it paid off, but now we are changing our view.