Change of course: what kind of papers will help to capitalize on the strengthening of the dollar

The ruble continues to strengthen against the US dollar, despite the daily purchases of foreign currency by the Central Bank on $100 million and weak dynamics of oil prices. From 7 February (the start of the regular currency interventions), the exchange rate of the Russian currency rose against the dollar by 1.8% since the beginning of this year — by 4.4% to RUB 58,20 the strengthening of the ruble is associated with its active use in speculative operations carry trade (trade on the difference in interest rates), popular among foreign players, as well as the tax period and the sale of foreign currency earnings by exporters. However, according to the head of the Ministry Maxim Oreshkin, the strengthening of the ruble is short. It is due to seasonal factors and capital inflows, associated including with privatisation transactions. In the near future investors will see the weakening of the ruble, and then its stabilization, the Minister said. Experts surveyed by RBC, believe that by the summer the us dollar will trade in the range of 60-65 rubles., that is potentially the dollar may strengthen from the current levels by about 12%.

Taking into account the possible growth of the dollar investments in foreign currency assets again become topical, according to the head of Department expert of “BCS Express” Dmitry Shishov. In addition to the purchase of currency, a popular financial strategy for getting a return in dollars or euros are the currency deposits in banks. However, rates on such deposits with the 15 largest banks in terms of assets are at very low levels from 0.01 to 1.75% depending on credit organizations, as well as the amount and term of placement. What tools can help private investors earn on currency assets more?


Bonds of Russian corporations or the Ministry of Finance, denominated in foreign currencies (Eurobonds), could potentially yield 4-4. 5% in addition to earnings from the growth of the dollar or the Euro, said Dmitry Shishov. In addition, in the case of a sale of Eurobonds before maturity the investor will receive the coupon income for each day of owning it (ACY), reminds the expert. Therefore, the early sale of this paper will not result in the loss of accrued interest. Prices of Eurobonds depend on the balance of demand and supply in the market, but unlike stock they are less volatile and in the long term tend to par as it approaches the maturity date, adds Shishov.

In turn, the Director for work with debt tools UK “the alpha-the Capital” Evgenie Kochemazov stressed that this year the market of Russian Eurobonds will get support by raising interest rates the US Federal reserve and, paradoxically, the continuing sanctions against Russia. In the previous two years the Russian company has reduced the issuance of debt due to limitations on investments in the Russian financial sector imposed by the US authorities and the European Union. Subsequently, the Russian Eurobonds were in demand among non-residents and domestic investors, which led to the background of a small number of new issues to the structural deficit in the market of a currency debt. In 2017-2018, the amount of available corporate bonds will be reduced by another 35%, which will contribute to the growth of prices for these securities and their yield can be as high as 5-7%, says Kochemasov.

Currently buy Eurobonds on the Moscow exchange and on the OTC market (e.g. on RTS Board) through a brokerage company. Among Eurobonds, which can be purchased at Mosberg for $1000, Dmitry Shishov highlights six issues. This paper Ticker BIN-19 (borrower — b & n, the yield to maturity of 6.5% per annum), PGIL-20 (“Polyus Gold”, 4,07%), PSB Fin-7 (PSB, 5,38%), RUS-18 (the Ministry of Finance of the Russian Federation 3,9%), Sistema-19 (AFK “System”, 3,87%) and VEB-20 (Vnesheconombank, 4,07%). Of the Eurobonds traded on the OTC areas, the expert advises to pay attention on TRUBRU-20 (TMK, 4.8% per annum), PGLLN-22 (“Polyus Gold”, 4,8%), PROMBK-19 (PSB, 4,7%), GAZPRU-22 (Gazprom, 4.1%) and LUKOIL 23 (LUKOIL, 4,2%) and CRBKMO-21 (MKB, and 5.7%). Kochemasov of the criminal code “Alfa Capital” sees good prospects have recently posted a short series (three to five years) “Transmashholding”, the Chelyabinsk pipe rolling plant and Rosneft. He also recommends to pay attention to seven-year Eurobonds of the State transport leasing company and the Moscow region.

Investing in Eurobonds, it is worth remembering the risks associated with this tool. So, despite the popularity among foreign investors, Eurobonds, traded on the Moscow stock exchange to remain illiquid securities. This means that the investor may have problems with the sale of Eurobonds when he wants to take profits. Also, according to the Russian legislation, on income earned through corporate Eurobond will have to pay personal income tax of 13% in rubles (and this applies to the coupon, and the difference between the purchase price and sale). In this Eurobonds loses monetary contribution for which an income up to 9% is not taxed at all.

Director of sales broker ITinvest Andrew Khokhrin also warns that Russian corporate Eurobonds are currently almost equal yield with Western securities. This suggests that the bond market is already overheated, he said. In this regard, Khokhrin advises investors to focus on short releases. “It is not necessary to buy securities with long terms and with the shoulder. Save money for better times, prices and purchases,” he concludes.

Exchange traded funds

Exchange-traded funds (ETFs) — a popular collective investment vehicle, its structure is similar to the Russian mutual Fund. The main difference between them is that an ETF is created in a foreign jurisdiction for Russian investors in foreign securities. In addition, ETFs generally have lower fees for service. Currently, the Moscow exchange is available 12 exchange-traded funds (ETF), two of which monitor corporate Eurobonds of Russian issuers, one price for physical gold, eight — MSCI indices of different countries and the Russian RTS, and one short-term U.S. Treasury bonds. All of these ETFs registered in Ireland, and their issuers is FinEx Funds Plc, the local subsidiary of the British investment company FinEx. For services with the owner of the unit will give from 0.45 to 0.9% per year depending on the class of assets in which we invest ETF.

Unlike exchange-traded funds Eurobonds on the Moscow exchange are traded in rubles, but the investor can purchase them for dollars. According to the Executive Director of MC Finex Plus LLC Vladimir Kreindel, it is possible in the framework of OTC transactions through broker, or in the negotiation of transactions on the Moscow exchange. The last option is valid only in respect of those funds that are traded in U.S. dollars. There are eight of them, including ETFs for us stocks and the RTS index.

Among all ETFs, presented on the Russian market, head of Department of trading operations IK “freedom Finance” Igor Kleshnev highlights two funds: the Finex Cash Equivalents, which invests in U.S. treasuries (Treasuries), and the Finex Russian RTS Equity, which tracks the most liquid stocks from the RTS index. Last year securities of these ETFs rose by 9% and 24% respectively, notes Clusnet. “Given that the heightened geopolitical risks in the world, the popularity of Treasuries is increasing, and the RTS index remains a serious potential for growth, these funds will go up,” he says, adding that the yields of these two ETFs in 2017 may be comparable to last year.

The Russians also have the ability to invest in ETFs traded on the American market, but the owner of a brokerage account must have the status of a qualified investor. To obtain it, you need to have the expense of 6 million rubles, or to possess a qualification certificate of thepromember (FFMS, CFA), reminds Clusnet. Investments in ETFs involve about the same risk as in the case of Eurobonds: the investment income have to pay personal income tax of 13% in rubles, so with a small growth of quotations and the significant strengthening of the currency investor can receive a very modest result.

Global equities

Investment banks Goldman Sachs and co Bank of America predict that the us S&P500 index completed in 2017 at around 2300 points. This is below the current level of approximately 14.6%. Nevertheless, some sectors of the us market may show positive trend for the year. “If the President of the United States Donald trump will keep his promises to increase spending on infrastructure in the country, it will benefit logistics and construction companies. And in the case of the repeal of Dodd-Frank will begin to grow a company in the financial industry”, — says head of information and analysis of international markets “Finam” Michael Aristakesyan.

Research firm Zacks Investment Research at the end of last year estimated the growth potential of stock construction machinery manufacturer Caterpillar and financial giant JP Morgan Chase in 2017 11 and 5.2%, respectively. Bank Goldman Sachs, in turn, relies on online hypermarket streaming services Pandora Media and Netflix, a service Internet-delivery GrubHub, the owner of Google search engine Google, the social network Twitter and payment service PayPal. The shares of these companies, according to strategists Bank, play the role of defensive assets in the U.S. market. This year, amid growing uncertainty on stock markets quotations can show growth in the range of from 3 to 20%, analysts say. Dividends these companies do not pay, therefore, the income investor can only receive through the sale of shares.

To buy any of these securities, the private investor is not necessary to enter the stock markets of the United States. Currently, the St. Petersburg stock exchange of Russia the available of stocks and Depository receipts of more than 200 global companies, says the head of the training center of the exchange Pavel Pakhomov. According to him, after the first fed Fund rate hike, which is likely to be held in may, the shares of construction and financial companies are expected to increase 5% or more. But investors should remember about payment of personal income tax of 13% on investment income.

“Tax is paid on the amount converted in rubles, even if it is earned in foreign currency. Thus, if after the transaction the dollar will rise, the investor will give the tax office more than if he paid in dollars,” says Pakhomov. Aristakesyan also urges investors not to forget that the action is more risky than ETF and Eurobonds. In this regard, investors should be prepared for the inevitable “drawdown” and regularly read analysis from purchased paper, to understand its prospects, the expert concludes.