OREANDA-NEWS. January 18, 2012. Renaissance Capital, the leading emerging markets investment bank, has published a research overview of Russia in 2011 and its outlook for the country in 2012, arguing that uncertainty and volatility will remain the name of the game for a while.

In a nutshell: 2011 into 2012 - Politics, politics and more politics, authored by Renaissance Capital’s award-winning research team, delves deep into individual sector performance outlooks, as well as providing a broader macroeconomic forecast for the country.

The report notes that Russian equities were the clear underperformer in December, with investors’ distaste for political uncertainty highlighted as the MSCI Russia Index fell 10.6% over the month, with the RTSi looking little better (-10.3%). Traditionally low December volumes took a much deeper dive this time, coming in at 48% below November levels and 39.6% below the 2011 annual average. Renaissance analysts conclude that Russian equities are undervalued, and a consensus BUY, although cautioning that timing is uncertain and that politics will remain in the driving seat.

Only three of the 26 stocks in the MSCI Russia Index saw their prices rise in December, with Magnit (+2.7%) and Raspadskaya (+1.1%) the top performers. Utilities stocks were affected by Prime Minister Vladimir Putin’s announcement on new fraud investigations in the sector.

Against a global backdrop that will almost certainly remain murky, in Renaissance’s view, politics is likely to dominate the domestic scene until mid-year, with the run up to the presidential election and the subsequent formation of a government and the appointment of senior cabinet members. Predicting the twists and turns of Russian politics at present is, in certain ways, equivalent to looking into a crystal ball, notes the report; and while the outcome of the presidential election itself is unlikely to be a surprise, Renaissance expects to see a number of surprises subsequently – not only around government appointments, but also with regard to likely losers among the business elite.

Renaissance analysts conclude that Russia’s macroeconomic indicators are still broadly robust, although some tentative signs of a moderation in economic activity, particularly on the supply side, have started to emerge. They expect Russia to see the greatest impact of the global slowdown in 1H12.

“We maintain our 2.3% Russian GDP growth forecast for 2012, on the assumptions of a mild European recession, weak US growth and a soft landing in China,” says Milena Ivanova-Venturini, Deputy Head of Equity Research, Renaissance Capital. “We expect to see increasing signs of this more moderate pace of economic activity. Heightened political uncertainty in the aftermath of the December 2011 Russian parliamentary election will also weigh on 1Q12 growth, in our view.“

The Firm expects to see increasing signs of more moderate economic activity on the back of weaker external demand and the completion of the inventory restocking cycle. Supply-side indicators have already started to send weaker signals, but Renaissance analysts expect demand-side parameters, including consumption, to catch up sometime in 1Q12. Heightened political uncertainty in the aftermath of the December Russian parliamentary elections will also weigh on 1Q12 growth, in the Firm’s view.