SocGen ‘Not Bullish’ on Ruble as Firms Buy Dollars
The ruble is “no longer trading in line with fundamentals” and will probably weaken toward the end of this year as Russian companies’ demand for foreign currency dominates trade, according to Societe Generale SA.
France’s second-largest bank is “no longer bullish” on Russia’s currency and is questioning its forecast for the ruble to gain 3.5 percent by the end of this year, Benoit Anne, head of global emerging markets at Societe Generale, said in a phone interview from London.
The ruble surged against the dollar and the euro today, rebounding from its weakest level this year against the common currency, as Russian banks and companies sought to convert foreign-currency earnings to make tax payments, said Anne, who is based in London. Companies need to pay back more than $12 billion of debt denominated in dollars and euros in December, according to data compiled by BofA Merrill Lynch Global Research, and this demand for foreign currency will dominate the ruble trade until the end of 2010, Anne added.
“There is very little interest among outside investors to re-establish long ruble positions even though the fundamentals are supportive,” Anne said, referring to bets on the currency’s appreciation. “Why would they when the corporate flows mean locals are effectively betting against the ruble?”
The ruble gained 0.8 percent to 30.37 per dollar by the 5 p.m. close of trading in Moscow, and added 1.2 percent to 42.3 per euro. Those movements left it 1.1 percent stronger at 35.7385 against the dollar-euro basket used by the central bank to manage swings in the ruble that harm exporter competitiveness. The basket rate is calculated by multiplying the dollar-ruble rate by 0.55, the euro-ruble rate by 0.45, then adding them together.
Societe Generale’s current forecast, issued two weeks ago, is for the ruble to strengthen to 29.50 per dollar by the end of this year and 28.30 by the end of 2011. Those predictions, which Anne says were based on rising oil prices and positive economic fundamentals for Russia, are “overly aggressive at this stage,” he said.
While crude, Russia’s chief export earner, has risen more than 7 percent since the start of July to around $81 a barrel today, the ruble has added 2.8 percent against the dollar and slumped 11 percent versus the euro. Brazil’s real has jumped 6.1 percent against the dollar over the same period, and the South African rand added more than 10 percent. The Czech koruna has strengthened 4.6 percent against the euro. The ruble is the worst performing European emerging market currency against the euro in the second half.
Russia’s currency lost 0.5 percent to the dollar this week, and added 0.7 percent against the euro, leaving it 0.2 percent stronger versus the basket.
The ruble’s day-to-day movements are more often driven by local demands for currency than investor positions, said Anne. “I have suffered disappointment with my calls on the ruble,” he said.
Companies need to pay 82 billion rubles ($2.7 billion) in production tax to the government by Oct. 25 and 129 billion rubles in profit tax by Oct. 28, according to estimates by Moscow-based Alfa Bank.
Bank Rossii is easing its control over the ruble and targeting a 2012 free float as other emerging-market regulators, including in Brazil, South Africa and South Korea, try to limit their currencies’ strength. The bank widened the so-called “floating corridor” it allows the ruble to trade within to 4 rubles from 3 on Oct. 13, and extended the weak end of the band by 5 kopeks yesterday after selling $650 million stemming ruble declines, Sergey Shvetsov, a central bank board member, said today in Moscow, according to the RIA Novosti news wire.
Commerzbank AG puts the new corridor at 32.90 to 36.95 as of yesterday, from 32.90 to 36.9 after last week’s expansion. The 5 kopek widening occurred at both ends of the corridor, which is now 32.95 to 36.95, VTB Group said in an e-mailed note today. Bank Rossii refuses to detail the parameters of the basket corridor.
Non-deliverable forwards, known as NDFs, which provide a guide to expectations of currency movements and interest-rate differentials, show the ruble at 30.6150 per dollar in three months.
Likely to Strengthen
Should Group of 20 finance ministers agree on a mechanism to stabilize currency markets at their meeting this weekend in South Korea “then the ruble is one of those emerging-market currencies that should benefit,” Chris Weafer, chief strategist in Moscow at UralSib Financial Corp., wrote in a client note e- mail today.
U.S. Treasury Secretary Timothy Geithner is proposing that the G-20, which includes Russia, agrees to reduce trade imbalances “below a specific share” of their economies as emerging markets struggle to limit investment in their currencies while interest rates in the U.S. and Japan remain close to zero. Russia’s trade surplus narrowed in August to $8.3 billion, Bank Rossii said Oct. 12.
The ruble is more likely to strengthen by the end of the year than weaken, the Interfax newswire cited Shvetsov as saying today. The currency will strengthen more than 5 percent to 34.12 versus the basket by the end of this year, according to the median estimate of five analysts’ estimates collated by Bloomberg.
The yield on Russia’s dollar bonds due 2020 declined for a seventh straight day, the longest falling streak since the notes were issued in April, leaving the yield at 4.34 percent today, up 11 basis points this week. Dollar bonds maturing 2015 rose, pushing the yield down 2 points today to 3.06 percent.
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