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News and Analytical survey

U.S. stock market: back to the Future

We expect
• a moderate recovery of US markets
• the dynamics better than the market in the industry flagships: IT-sector and biotechnology

Important news
• On February 15 China released data on import and export. Indicators were falling for over a year and this time they have fallen more than expected. On the same day it was reported that Japan's GDP fell by 0.4% in the Q4 of last year, which was worse than expected. Since the release of this news, and by February 23 the Chinese CSI300 gained more than 5%, while Nikkei225 grown by more than 7%. This happened against the background of
investors' confidence in the new incentives from the central banks of these countries.

• On February 15 the US Commerce Department reported that retail sales in the US increased in January by 0.2%. Index change was not expected. The December value was revised upwards. The publication has contributed to the growth of US indexes.

• On February 16 it became known that Russia, Saudi Arabia, Qatar and Venezuela are ready to freeze oil production at the January's level, if other oil producing countries to do the same. Iran supported the initiative to stabilize the oil market, but it is unclear whether the country intends to limit its production level. On February 23
OPEC urged the US to take part in these negotiations. From February 16 the price of Brent crude adds more than 3%.

• From the Fed minutes published on February 17 it became known that the majority of the members of the Fed
have considered the turbulence in the stock market, which took place after the first in the decade rate increase, as an additional risk factor. This made them to more seriously consider a pause before the next such step. The news caused a positive movement of US indexes.

The US stock market: good prices and a lot of money (Timur Turlov, Chef of investment company Freedom Finance)

The money supply in the US today is at historic highs. During the last few years a lot of dollars was "poured" here, and now the whole world is watching the economic effect of the boom in business, credit activities and, as a consequence, the growth of financial results of the American businesses. Another thing is that the fear of a slowdown in China and the lack of certainty with the oil prices restrain investment activity: the shares of the largest US companies today are absolutely cheap.

Historically, the stock market growth is closely linked to the growth of the money supply. Currently in the US we have seen a remarkable lagging of index behind the pace of M2 growth. Perhaps this is the greatest discrepancy since the launch of the stimulus measures. The fundamental asset prices now are as different, comparing to the
actual stock exchange prices, and it is not only our position, but also the consensus opinion of the majority of analysts surveyed by Bloomberg. The professionals have no doubts that the S&P 500 index shares are now
undervalued.

Fear often generates not the most rational course of action: often we can see the desire to "just sit in-the-money" on a background of fear of losing them due to the general global instability. Today this fear is stronger than the fear of inflation, which has slowed down significantly in the US against the backdrop of falling oil prices. And this is the one of the main factors hindering investors from buying US assets with good cash flow.

However, a storm in the oil and Asian markets, as we have seen, gradually subsides. Inflation in the world, which started the "Inflation race" game, just cannot help but begins to grow (and the Fed realizes that this is an important stimulus for economic growth now). Therefore, I believe that the foundation today will take its toll and we will begin to return to the trend. It is very likely that the current times will be called the «biggest buying opportunity», because the volume of money is now growing in the world, but not the number of high-quality stocks.

Russian market: Oil momentum picks up the market

In February the market showed a sharp drop from two-month highs and meteoric rise after that, resulting in return to the previously lost positions. The reason for the growth was the rebound in oil prices - Brent rose to $35 a barrel. This happened after the preliminary agreement between main oil producing countries for freezing production at the January levels was reached, as well as after the forecast from the International Energy Agency, that supply and demand will be balanced in a year.

Russian economy is showing a slowdown meanwhile. Finance Minister Anton Siluanov acknowledged that the recession will be protracted, the rebound is not expected in the near terms, and the only way to support the economy is to implement structural reforms. Top news was that anticrisis program is lacking money. Previously it was assumed that the state support for industries would be about 820 billion rubles, but in the current year without the involvement of additional reserves it can be allocated only 120 billion instead of the planned 250 billion.

The government is looking for ways to finance the budget deficit and the anti-crisis program. Among the main sources will be the privatization of state-owned holdings in some large public companies: Rosneft, Alrosa,
VTB and others. News about the preparation of the privatization lifted prices of these shares. For example, Bashneft jumped 25% on the news about possible interest from Lukoil.

Important news
• Rosneft is investing more than 4.5 billion rubles in exploration in Khanty-Mansi autonomous okrug. It intends to drill more than 130 oil wells with annual production of 63 million tonnes, about a third of the company's current production.

• Lukoil does not exclude the growth of gasoline prices. Due to the planned increase of excise taxes, 30 billion rubles will be wiped out from the company. It is planned that the excise tax will be raised since April 1 resulting in increase of gasoline retail price by 2 rubles.

• Gazprom agreed with Edison and DEPA for assistance in the gas supply to the countries of Southern Europe. As a result of the signing of memorandum of understanding Russian monopoly has a chance to revive the "South Stream" project, which is frozen because of the European Commission claims, or less ambitious Turkish stream, which is also stalled.

We expect
Our basic forecast is that the MICEX index may try to rise again to 1860 points level in the case of favorable external and news background.

Our strategy
We recommend holding defensive securities - inflation-pegged federal loan bonds, Norilsk Nickel shares and Surgutneftegaz and Transneft preferred shares. It is worth to look into Megafon, MTS and Lukoil, because dividend yield there is expected to be around 8% or above.

PepsiCo – investing for all times
Considering the continuing stock market correction, PepsiCo share price demonstrate calm and confident behaviour. The company updates its product line, increases its dividend and has nice long-term growth potential.

PepsiCo – 44 years of stability
According to the financial results published on February 11, company's revenue in 2015 decreased by 5% to $63 billion, however, excluding currency fluctuations it rose by 5%. PepsiCo's net profit also declined slightly, but both
figures exceeded market expectations. In addition, top management and Wall Street remain optimistic about the prospects of the company for the next two years.

One of distinguishing features of PepsiCo is diversified business that includes not only beverages but various snack products too. Also, the company constantly invests in research & development, presenting new food products with enviable regularity which provides consistently high demand all over the world - the main source of fundamental growth for the company in the long term.

Despite a slight decline in revenues, PepsiCo keeps its dividend policy unchanged: during last 44 years the company has been steadily increasing their size.

About the company
PepsiСo, Inc. is an American multinational food, snack and beverage corporation wich was formed in 1965 and headquartered in Purchase, New York, United States. The company owns such brands as Pepsi, 7Up, Gatorade,
Tropicana, Lay's, Cheetos and many others. In last years PepsiCo makes bet on a healthy nutrition and reduction of hazardous substances in its food products.


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