Morgan Stanley Slashes Russian GDP Forecast, Sees Recession Lasting Even Longer

Ronan Carr of Morgan Stanley on Friday commented in a note that the firm's economist Alina Slyusarchuk has cut her Russian GDP forecast to -5.6 percent for 2015 and -2.5 percent for 2016.

“The key new assumption that triggers the revision is a significantly weaker oil price (assumes forward curve), combined with a tighter policy response,” Carr wrote in his note. “Looking ahead, we see the recession lasting much longer through 2016, unlike the V-shaped rebound in 2009, particularly given the rising risk of further sanctions.”

Carr also notes that a recovery in Russian equities will be slower to materialize and implies downside to consensus earnings per share forecasts of -8 percent for 2015 and +9 percent in 2016.

Crude prices are likely reach a low point in the second quarter 2015, according to Morgan Stanley commodity strategists. Carr states that Russian equities arguably look fully priced for spot oil prices as the ratio of the MSCI Russia versus Brent through most of 2012 to 2014 traded in a range of 5.5 to 7.5x, making the current 8.8x ratio look “somewhat elevated.”

Bottom line, Carr concludes that Russia's fundamentals are poor and downside risks remain on geopolitics. A preference is given to exporters versus domestically exposed stocks. Preferred sectors include Materials, then Oil, but cautious on Banks and Consumer.

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