The Future Landscape of the Russian Stock Market

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The crisis will fade away one day. On that day, companies will start forecasting year-on-year earnings growth instead of growing declines. The stock market will survive, but its landscape is likely to change significantly.

Looking at the Russian stock market 10 years from now we are likely to see new sectors and stocks. Some sectors will become bigger and more important, and some sectors will lose its share in total capitalization. The new stocks will come to the market via IPOs, private placements and sales.

The banking sector is likely to get a higher weight in total market cap of the Russian market. The weight of banks in the total market cap of developed countries is roughly 20 percent. It is approximately the same weight in the emerging markets. In Russia, only about 40 percent of the banking sector is traded on the stock exchange. The rest are privately held banks. This will change in 10 years. One of the factors that will facilitate banks taking a larger share of the total market cap will be the purchase of lots of distressed assets, which will cost many times more what they do now.

Commodities trading will become a sector in itself, with few commodities trading houses emerging.

Insurance will be bigger. Currently there are no insurance stocks on the exchanges in Russia.

Some exchanges could become public.

The construction sector and real estate sector will be larger after Moscow city is finished; Sochi is built and ready for new Olympics. Road building will emerge as part of the construction sector. At the moment there are no efficient road construction companies in Russia. It took 10 years to build a 40 kilometer strip of Kievskoe Shosse from Moscow to Aprelevka, though in a far less upbeat Egypt it took only 4 years to build an 800 kilometer highway from Sharm-el Sheikh to Cairo.

The electricity generation industry will become larger after Rosatom goes public. The electricity retail sector will also be consolidated and much larger.

The transportation sector will be much larger if Russian Railways goes public and various metro systems in Moscow, St. Petersburg, Volgograd, Kazan, Chelyabinsk, Krasnoyarsk, Novosibirsk, Nizhniy Novgorod, Samara and Yekaterinburg become public and their shares are traded on stock exchanges.

The agriculture sector could be much bigger on Russian stock market -- currently the sector is highly fragmented, but there are few players standing on the sides ready to consolidate companies in the sector.

The media and Internet sectors will not be very large, but they will much larger than they are now. The mobile sector will continue growing on the back of higher Internet usage via mobile devices.

The retail sector will continue growing on the back of consolidation in the sector. Currently only 10 percent of the sector is consolidated in Magnit, X5 and Sedmoi Kontinent.

Tourist companies will be traded on the stock exchanges; the IT sector will grow, so will health care; machine building should grow, given the oil price. The chemical sector will be large and supplying fertilizers and other goods to growing global population. The steel sector will be very robust and large supplying rebar to the remote places of the world where population will be moving from clay cabins to simple but made out of concrete housing.

Relative to its current size, the oil sector could be larger, though its weight in total capitalization will be smaller.

Some Ukrainian, Kazakh, Azerbaijani, Turkmen and Armenian stocks will be quite liquid on the Russian stock exchanges.