Russia Equity Strategy
2009 outlook: awaiting
global warming
Baseline 2009 year-end RTS Target is 1,000 (+60% upside)
Yaroslav Lissovolik
Chief Strategist
(7) 495 933 9247
yaroslav.lissovolik@db.com
Georgy Kartashov
Research Analyst
(7) 495 933 9232
georgy.kartashov@db.com
Deutsche Bank AG/London
All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from
local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies.
Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be
aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider
this report as only a single factor in making their investment decision. Independent, third-party research (IR) on certain
companies covered by DBSI's research is available to customers of DBSI in the United States at no cost. Customers can
access IR at http://gm.db.com/IndependentResearch or by calling 1-877-208-6300. DISCLOSURES AND ANALYST
CERTIFICATIONS ARE LOCATED IN APPENDIX 1.
RTS INDEX TARGET
RTS Index Chg from cur.
Current (30 Dec 2008) 625
31 Dec 2009 (baseline) 1,000 +60%
RTS Index vs MSCI EM Index
500
1,000
1,500
2,000
2,500
2004 2005 2006 2007 2008
60
70
80
90
100
110
120
130
140
RTS Index RTS Index / MSCI EM ratio (RHS)
EQUITY MODEL PORTFOLIO
STOCK SECTOR WEIGHT, %
GAZPROM Oil & Gas 25%
NOVATEK Oil & Gas 5%
LUKOIL Oil & Gas 11%
ROSNEFT Oil & Gas 11%
SURGUT PREFS Oil & Gas 6%
NORILSK NICKEL Metals & Mining 10%
RASPADSKAYA Metals & Mining 10%
MAGNIT locals Retail 9%
MTS locals Wireless 9%
COMSTAR Wireline 4%
Source: Bloomberg, Deutsche Bank Research estimates
Global Markets Research Company
After the high hopes of a new liberal wave of economic reforms with Medvedev
taking over the presidency in May 2008, the sequence of surprises that buffeted
Russia’s equities was truly staggering: the Mechel case in July, the war conflict in
South Ossetia in August, the downturn in global markets in September, the
intense pressure on the rouble and record high capital outflows in October and the
sharp drop in Russia’s real growth in November. Across emerging markets
Russia’s equity market turned out to be one of the worst performers in 2008: the
MSCI Russia index collapsed by 71% vs a decline of 53% for the MSCI EM and
42% for the MSCI World. Russia underperformed the EM space for the second
consecutive year.
We are setting the RTS Index 2009 year-end target to 1,000 (baseline
scenario), which implies a 60% upside potential from current levels. Our 2009
RTS target of 1,000 is based on an oil price forecast of USD47.5/bbl for 2009. We
have also introduced changes to our Model Portfolio, which now includes
Gazprom, Novatek, Rosneft, LUKoil, Surgutneftegaz prefs in Oil & Gas;
Norilsk Nickel, Raspadskaya in Metals & Mining; MTS, Comstar in Telecoms
and Magnit in Retail and Consumer Goods. The key criteria in selecting these
stocks into our Model Portfolio include exposure to rouble depreciation, resilience
to global and Russia’s economic downturn, the level of dividends, corporate
indebtedness as well as a bias in favour of blue-chips and state-controlled
companies.
Overall, the key macroeconomic theme affecting the outlook on the stock market
in 2009 is likely to be the exchange rate – rouble’s depreciation closer to its
equilibrium level in Q1 2009 should lead to the moderation in outflows and less of
a drain on liquidity in financial markets. In our view global factors will determine to
a large degree the timing and the scale of the recovery in Russia’s equities.
Similarly, some of the key risks also pertain to global factors, most notably to the
future dynamics in the oil price, the euro/dollar rate and the performance of global
equities. Domestically, the key vulnerabilities include the risks of state
interventionism, corporate governance risks and the adverse effects of Russia’s
economic downturn on the financial sector.

Table of Contents
2008: the worst year in a decade ...........................................................................................3
Taking stock of historical trends .............................................................................................6
Analysis of large correction episodes: have we already passed the bottom?...................7
Global outlook: peering through the clouds ............................................................................8
Political outlook: a shift in priorities – from modernization to self-preservation .....................11
Macroeconomic outlook for 2009.........................................................................................14
Exchange rate depreciation: picking up pace..................................................................14
Inflation: back in the single digits? ..................................................................................15
Real sector growth: the state to lead the way ................................................................16
Budget and BOP – from twin surpluses to deficits .........................................................18
Equity outlook: RTS 2009 year-end target of 1,000...............................................................21
What will happen with corporate earnings in 2009? .......................................................21
Market implied ROE and equity risk premium: where do we stand?..............................23
RTS Target of 1,000 for 2009..........................................................................................23
Our top picks and equity Model Portfolio .............................................................................24
Important Disclosures.....................................................................................................28
Analyst Certification ........................................................................................................28
Regulatory Disclosures ...................................................................................................29
1. Important Additional Conflict Disclosures ...................................................................29
2. Short-Term Trade Ideas...............................................................................................29
3. Country-Specific Disclosures ......................................................................................29