FOCUS: Telecoms winning investors fleeing from foreign markets hit by Chinese virus
By Yekaterina Yezhova
MOSCOW, Feb 10 (PRIME) -- The telecommunications sector has become a safe haven for investors looking for quality during the turbulence caused by China’s coronavirus – it has gained 5.7% since the beginning of the year as the broader Moscow Exchange Russia Index rose 1.4%, analysts say.
“Economic repercussions of the Chinese virus have hit the metallurgical, oil, and gas sectors most. In such situations, the companies oriented on the internal market win,” Mikhail Shulgin, director of the global research department at Otkritie Broker, told PRIME.
“In February, the telecom sector has a chance to demonstrate its defensive functions and grow due to the negative influence of the coronavirus on the external appetite to risk and on the background of other industries more dependent on China’s demand.”
Yan Melnichuk, an investment consultant at investment company BCS Premier, explained the robust growth by its weak exposure to the coronavirus situation. The companies do not suffer heavy losses and their stocks can be seen as protective, he said.
Investment company Aton said, “We tactically prefer domestically exposed sectors such as the utilities and TMT (telecom, media, technology), and gold as the virus-related market risk increases.”
“With over 12% of Russian exports bound for China, the outbreak implies stronger headwinds for an economy already demonstrating lackluster growth rates… Consequently, we tactically prefer the sectors with a healthy domestic exposure such as utilities, TMT, and selected consumer names,” Aton said in a note.
The analysts agreed that the telecom sector is also generous for dividends that appeal investors. “Many firms will revise the payments up,” Melnichuk at BCS Premier said.
The telecom indicator’s two main pillars, ordinary shares of MTS and Rostelecom advanced 3.5% since the beginning of the year to 331 rubles on February 7 and 12.6% to 88.20 rubles respectively.
The situation was, however, slightly overshadowed by media reports that the coronavirus may hurt electronics supply to Russia as Beijing has extended the New Year holidays because of the virus outbreak. Smartphone and consumer electronics companies with production facilities in China postponed deliveries of equipment to Russia for two weeks.
“The scale of the impact will depend on how long the disruption continues. The current several week delay may result in just a small deficit and will help Russian retailers to sell stocks. If the shortage continues, prices of Chinese produced components and electronics could go up further, obliging sellers to hike prices,” Aton said.
The leading electronics retailers Svyaznoy and M.Video-Eldorado Group said they are facing no problems.
“We don’t know about changes in the schedule of supplies of goods from our partners. At present, all supplies are in line with the agreements. Also, we see no reason to increase prices,” a Svyaznoy spokesperson told PRIME.
M.Video-Eldorado Group has no difficulties with assortment or inventory of goods either, and its promotion campaigns pass as planned.
Georgy Vashchenko, head of trade operations on the Russian stock market at investment company Freedom Finance, said retail has enough devices. “Equipment will be delivered all the same, albeit with a delay,” he said.
“My sources do not rule out that theoretically the quarantine may affect the business if lasts for a month and more. The smartphone market will be the first victim. A shortage of some models may be seen soon. The market’s size is about 400 billion rubles a year, or 35 billion rubles a month. The official suppliers will be the hardest hit, while private imports will be re-channeled, like via Mongolia,” he said.
Melnichuk at BCS Premier also thinks that a longer delay in delivery of electronics from China may affect the Russian telecom and Internet companies.
“But it’s still too early to draw any conclusions, and we see no collapse in logistics so far. If the coronavirus story stretches over weeks or months, the logistics chains can be impacted and we’ll be able to speak about a really negative outcome,” the analyst said.
(63.4720 rubles – U.S. $1)