The price of crude oil reached a new annual high of 84 US dollars/barrel on 15 October. This means a doubling in 1 year. Gas prices have risen even more on the spot market in recent months. This is now fuelling inflation and causing rising petrol and heating costs for the population. On the other hand, Russian oil and gas producers, above all Gazprom, have profited from this. The Russian RTS index has already risen by more than 60 percent in one year, clearly outperforming the DAX.
But also 12 other Eastern European stock exchanges clearly outperformed the DAX and S&P index. It is regrettable that the Eastern European stock exchanges are still treated very stepmotherly in the media and that even bank advisors hardly have the know-how to give competent advice here. Andres Männicke also gives his assessments of future opportunities in his stock market letter EAST STOCK TRENDS (www.eaststock.de) and in his new EastStockTV video, episode 191 at www.YouTube.com .
Oil prices at new high for the year
Oil and gas prices have gone through the roof in recent weeks, which is now even becoming a topic of conversation for the next coalition government. The population is considerably burdened by rising inflation. On 15 October, the price of crude oil rose to a new annual high of 85 US dollars/barrel and the price of WTI oil to 82 US dollars/barrel. This means a doubling of prices in 1 year and now even a new 7-year high. At its low, the WTI price was even around 20 US dollars/barrel in April 2020, so that it has already quadrupled since then. High energy prices are also fuelling inflation, which has already risen to over 5 percent in the US and over 4 percent in Europe. The central banks will nevertheless keep interest rates low because they still see inflation as only a temporary problem.
Quo vadis oil price?
It is difficult to predict whether the oil boom will last until the end of the year. Recall October 2018 when the oil price was at $85/barrel and then collapsed to $50/barrel by the end of the year because of the newly flared trade conflict between the US and China. There has already been discussion in the US about releasing the strategic oil reserves, which are meant for emergencies, but this was later denied. At the moment, there is still excess demand due to the strong economic recovery. According to the International Energy Agency (IEA), the oil market is currently undersupplied by about 1 million. barrels a day. In September, OPEC produced 27.2 million barrels of oil. Russia is expanding oil production by only 1 per cent a month, as agreed by OPEC, but could produce much more oil. But financial investors are also causing an overreaction through the futures markets by pure speculation on rising oil and gas prices. Thus, the net long positions on the futures markets have already increased significantly.
When will the central banks start “tapering”?
But here, too, the question is whether the economic upswing will continue next year. It will be dangerous for all commodities if the dollar becomes too strong and if the central banks start to reduce the supply of liquidity, known as “tapering”. But it is also unclear when the current demand overhang will end. Important for this are the next OPEC decisions, but also how much additional fracking oil will now come onto the market in the USA. A breakdown of supply chains could also lead to an economic slump. It is also important to observe whether the real estate bubble in China will burst due to the near insolvency of the Chinese real estate developer Evergrande.
Gazprom remains a “political issue
The Russian oil and gas companies, which are also able to produce at very low costs, have benefited most from the sharp rise in oil and gas prices. Thus, the price of the Gazprom share has already doubled this year. New record profits are expected in the 3rd quarter, after a net profit of 7 billion US dollars was already achieved in the 2nd quarter. It is still unclear when the now completed Northern Pipeline will be put into operation, because political and technical certification can take a long time. The Greens in particular are against the commissioning of the Nordic Pipeline, but so are many politicians in the EU. Gazprom therefore remains a “political issue”.
Russian “Red Chips” Beat Western “Blue Chips
But the share prices of LUKoil and Rosneft also made strong gains. Rosneft is the world’s largest oil producer together with Saudi Aramco. Nevertheless, the shares of the Russian “red chips” are clearly undervalued compared to the Western blue chips such as BP, Shell, ExxonMobil and Chevron, and they pay much higher dividends. For example, the dividend yield on Gazprom and LUKoil is still in the two-digit range despite the sharp rise in their share prices. Nevertheless, most Western investors keep investing only in Western blue chips because they are not sufficiently informed by the media and bank advisors. But even in stock exchange magazines and in the media, the Eastern European stock markets are still treated very stepmotherly. The monthly stock exchange letter EAST STOCK TRENDS (www.eaststock.de), which regularly reports in detail on the opportunities and risks of Russian oil and gas stocks, provides a remedy.
Western oil juniors are now also suddenly in demand again
However, smaller small and mid caps in the oil/gas sector, also called oil juniors, are now interesting, such as the Canadian oil producer. Saturn Oil & Gas, whose share price has already risen by 81 per cent from €1.6 to €2.9 since July following a lucrative takeover. Oil and gas shares were previously in little demand and not very popular in the first half of the year, also because of the issue of climate change. The new German “traffic light” government, should it come into being, is now focusing primarily on gas-fired power plants, at least as a transitional technology. But those investors who, despite the bad mood at the beginning of the year, had the courage to take an anti-cyclical approach and include Russian oil and gas stocks in their portfolios have now been handsomely rewarded. Sometimes you need a little patience on the stock market, but it pays off.
Many Sectors Benefit from Oil and Gas Price Rise in Russia
But the Moscow stock exchange has much more to offer than just commodity shares. Bank stocks such as Sberbank or VTB Bank, which supply the oil/gas sector with large loans, have recently benefited from the rising oil prices, but some Russian consumer stocks such as Magnit have also risen recently. Russian gold stocks, on the other hand, were less in demand, as the gold price only trended sideways and even fell by 1.37 per cent to 1769 US dollars an ounce on 15 October. More and more investors now seem to be shifting from gold into Bitcoin and other cryptocurrencies because there is more money to be made speculatively there.
Bitcoin at a new all-time high
Many Russians also like to speculate on Bitcoin, which almost reached a new all-time high on Friday with a price of over 61,000 BTC/USD. At the beginning of the year it was still at 30,000 BTC/USD. Bitcoin (BTC) rose by more than 7 per cent in US dollars on Friday, and thus by more than 400 per cent in one year. In 5 years, it was even possible to make a profit of almost 10,000 percent with Bitcoin. The stock market letter EAST STOCK TRENDS also regularly reports on the development of some cryptocurrencies in a special and gives investment recommendations in this regard.
Moscow Stock Exchange as a clear outperformer in 2019 and 2021
As the Russian “red chips” such as Gazprom, LUKoil, Rosneft and Surgutneftegas are very highly weighted in the Russian indices, the indices such as the RTS index in US dollars or the RDX index in euros also rose strongly. The RTS index rose in US dollars to a new annual high of 1,891 index points by 15 October, which means a price increase of 32 percent since the beginning of the year. The RDX index even achieved a plus of 53 percent in euros. The DAX achieved a plus of only 13.55 per cent this year and the American S&P index a plus of 20.67 per cent. The Moscow Stock Exchange thus remains a clear outperformer of the DAX – as it has been in 2019.
12 Eastern European Stock Exchanges as Outperformers
But 12 other Eastern European stock exchanges have also significantly outperformed the DAX this year. The KTX index for shares from Kazakhstan even achieved a plus of 86 percent. The share price of Kazatomprom, the world’s largest uranium producer, has already more than doubled. Uranium shares have also gone through the roof recently, as have oil/gas shares. But also the CECE index (with Poland, Hungary and the Czech Republic on board) clearly outperformed the DAX and the S&P index with a plus of 27 percent. All the more reason to look more closely at Eastern European equities now, in order to at least be part of the possible year-end rally. As the ex-Soviet President Gorbachev said so well: “Life punishes those who come too late…”.
Inform first, then invest
Inform yourself now in detail about the background and the development of the Ukraine/Russia crisis but also about the future recovery potential of the undervalued shares from Eastern Europe. There are also new opportunities in the Baltics, Romania and Ukraine, with the respective stock indices all up in 2019. For example, some Ukrainian agricultural stocks have already more than doubled in price since 2016, and in 2018 the PFTS index was already up over 70 per cent again. Kazakhstan stocks were among the top performers in the world in 2017 (+56 per cent), but not in 2018 and not in 2019, but again in 2020/21.
In 2018, 10 stock markets from Eastern Europe were already among the best-performing stock markets in the world, all of which clearly outperformed the DAX and also the US stock market. In 2019, the Moscow Stock Exchange was once again the clear outperformer among all global stock markets, with a plus of over 46 percent in euro terms. But also the Bucharest Stock Exchange (Romania) already rose by over 32 percent in 2019. The stock markets in Southeast Europe and also in the Baltic countries remained very stable in the plus (Croatia +13 percent). Last year, 6 stock exchanges from Eastern Europe were among the 30 best-performing stock markets in the world and this year even 12 stock exchanges from Eastern Europe until the end of September 2021. After the Corona crash, it is still worthwhile to look beyond the horizon to Eastern Europe.
Order now a trial subscription (3 issues by e-mail for only 15 €) of the monthly stock exchange letter EAST STOCK TRENDS (EST) with another Ukraine/Kazakhstan/Russia special and a dividend special as well as with a lot of background information and new investment suggestions such as the “Stock of the Month” and lucrative certificates at www.eaststock.de, there under Stock Exchange Letter.
The last EST was published on 30 September 2021, and the old EST model portfolios have already made strong gains in 2019. The “Stock of the Month” from December 2019 TCR Group already rose by 200 per cent and the “Stock of the Month” from March 2021 Gazprom already by over 80 per cent. Russian gold shares, on the other hand, fell a little in price due to the fall in the price of gold. Nevertheless, the “gold sample portfolio” has almost doubled in value since the end of 2018. The shares listed there all still have potential as soon as the gold price picks up again. The “dividend pattern portfolio” with Gazprom and Kazatomprom in the boat has already risen by 58 percent since the end of 2018.
The relatively new December 2019 portfolio with turnaround candidates rose by 42 per cent. The December 2020 “Stock of the Month” TCR Group – a fast-growing fintech bank from Russia – already rose over 186 percent in 7 months. In Kazakhstan, the new IPO Kaspi.kz, a fast-growing fintech company from Kazakhstan, which was extensively featured in EST in April, is making a splash. The share has already risen by 40 percent since then. The motto therefore remains: Go East!
Interview notes: The last TV interview by Andreas Männicke on Welt TV was on 14 October 2021 and the last radio interview was on 2.8.21 on Börsen Radio Networks. The next interview will be on 19.10.21 at 11.00 a.m. on Börsen Radio Networks. You can download the interviews now at www.eaststock.de, there under the heading “Interviews”, as well as the EastStockTV video of the same name, episode 191. By the way: have you already subscribed to the EastStockTV YouTube channel?