Russian shares are set for gains of over 20 percent by the end of 2016, the median forecast in a Reuters survey showed, led by expectations the economy will stabilise and oil prices gradually recover from multi-year lows.
Analysts said the gains were likely to be concentrated in the second half of next year, however, and warned geopolitical tensions between Moscow and the West could derail any upward momentum for equities.
The dollar-denominated RTS share index has see-sawed in 2015. It racked up gains of almost 40 percent by mid-May, before sinking back and now trades at a similar level to a year ago.
The median forecast from seven analysts surveyed over the past week, showed the RTS would end 2016 at 950 points. It closed at 777 points on Friday. Many analysts were reluctant to provide forecasts on the RTS in the latest round of polling.
Danske Bank trading strategist Vladimir Miklashevsky was among the most bullish who replied to the survey, saying he saw the RTS ending 2016 at 1,050 points and Russian gross domestic product growing by 0.5 percent for the year.
The latest Reuters poll consensus for Russian GDP growth next year is just 0.3 percent compared with an expected 3.9 percent contraction this year.
"But a shaky geopolitical environment poses downside risks to our forecast," said Miklashevsky.
Russian assets fell out of favour in 2014 as the United States and European Union imposed economic sanctions on Russia over its role in the Ukraine conflict and oil prices collapsed.
Now there are further clouds on the horizon, with tensions related to Russia's military operation in Syria contending for investor attention with an economic slowdown in China and the prospect of rising US interest rates.
End-2016 forecasts ranged from 800 to 1,050 points, reflecting uncertainty as to what the next 12 months hold.
Several analysts said they had factored in an oil price of around $50 a barrel when predicting the trajectory for Russian shares. As with the economy, their expectations were that oil prices would rise modestly in the second half of 2016 after remaining weak early next year. Oil and gas companies have a weighting of around 50 percent in the RTS, hence energy prices are a key determinant of its fortunes.
Brent crude closed on Friday at around $38 a barrel, close to its lowest since December 2008.
Deutsche Bank's Evgeny Monakhov said he saw the RTS reaching 960 points by the end of next year if oil prices averaged $60 for the year. He said: "You could be more optimistic if you expected Western sanctions against Russia to be lifted or geopolitical breakthroughs, but I don't."
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