The second weekly review is ready to tell you about car industry in one of the emerging markets…
Driving East
Having my internship in transport logistics in Russia, I’d like to share my observations of the peculiar development of automobile market in one of BRIC countries, and explain which investment opportunities it brings on the table.
Horrific Past
In mid-2008, global car market literally crashed. A slow recovery was seen in 2009; nonetheless, sales volumes are still far behind the peak level in summer 2008. The overall mood in the automobile industry can be represented with stock price fluctuation of such a giant as Volkswagen Group, producing famous Volkswagen, Audi, Skoda and such luxurious brands as Bentley, Lamborghini and Bugatti.
In boom years cars, being normal good, were at high demand, since consumers were wealthier in those years. Reaching a peak in summer 2008, car sales then started to decline dramatically. Renault Group, for example, lost nearly 80% of their profit in 2008, compared to the previous year. Moreover, during that year and year of 2009, a secondary car market became more popular than a primary one. Drivers were ready to incur a risk of buying a used car than going to a more expensive saloon for a new auto.
In winter, 2010, a glimpse of hope appeared when governments of major European countries, in which car market makes a significant part of countries’ GDP, successfully introduced subsidies for consumers buying new cars. Some investors, however, consider sale growth based on subsides to be artificial, without providing real ground for future growth. These statements appeared to be true, since in April and May car sales in Europe declined (8.7% fall in May).
Financial markets clearly mirrored the situation in real sector. From 2006 till summer-autumn of 2008 stock prices of all public listed car manufacturers were rising, including Volkswagen AG. At the peak share price reached as high as 900 USD. Since then, prices fell substantially, now leveling out at around 70 USD. Trade volumes after autumn 2008, when most short-term speculators and scared investors dumped their stocks, declined and haven’t fully
recovered since then.
Volkswagen AG they all are fun to handle and a very good and reputable on-line or scratch card site offers chances of 1:3, that means one in three scratch card tickets is a winner. share price and trade volume 2006-2010. Source: Bloomberg
Hopeful Future
While the eyes of most investors are directed to Western markets, I would encourage them to take a look a bit “Easter”. In times when European market falls at mentioned 8.7% level, Russian car market rises 31%. Partly, this growth is created by the subsidies coming from the government, but mostly this growth is determined by positive background and outlook of overall economy in that country. Such a high figure signals of great potential on this emerging market. Frankly, 2.5 years ago, at the bottom of car sale market, Volkswagen opened its own plant in Russia, in Moscow region, feeling the great potential of that country. Russian Statistics Agency “Autostat” evaluates Russian car market as the fifth biggest market in Europe. When in Germany sales are falling 35%, 11% in France, 14% in Italy, Russian 31% growth in May gives it a potential to be a European leader in the near future..
One of the most successful representatives of local car manufacturers, that appears to me, as an investor, very attractive, is “Sollers”, listed on Russia Stock Exchange. Being a partner of Italian Fiat and South Korean SsangYong Motor Company, “Sollers” manufactures and distributes their models in Russia and Central Asia, as well as it produces its own brand UAZ, which enjoys rather high demand of Russian consumers. It has 3 plants in Russia, with one recently opened in Vladivostok, the only car manufacturing plant in Russia’s Far East. New plant opening signalizes about increased manufacturing volumes, and, thereby, sales volumes. In addition, “Sollers” plans to start manufacturing Chrysler”s Jeep brand in 2010.
These facts should not be missed by investors, if they wish to earn on car market. Car market is reviving, not to say more, it is shooting in emerging markets, which is often too difficult to notice. When Western countries still suffer from recession in many industries, it might be a good decision to diversify the portfolio with some “emerging” shares and be the first one who gains on them.
Written by Vadims Pikarevskis on behalf of SSE Riga Investment Fund
