Rally Running Out of Steam

All good things must come to an end, and that end might come sooner rather than later for a recent rally on the global equity markets.

Last week, investors saw signs of a correction to this spring's monthslong rally. While the bounce may hold out a few weeks still, at some point fundamentals have to outweigh sentiment, analysts said.

Both the S&P 500 and Nasdaq fell three sessions in a row last week thanks to a rush of poor data on U.S. April retail sales and unemployment claims. The MSCI Emerging Markets Index, which had gained as much as 53 percent since the beginning of the year, also began sputtering and reported five consecutive days of losses, falling 2.9 percent for the week.

Though the country's capital inflows continue to lag behind emerging markets Brazil and China, its markets' gains have shot ahead thanks to low-priced equities and an oil price that reached as high as $60 per barrel before falling back to $56 at the end of the week.

The MICEX and RTS indexes have added roughly 50 percent since the start of the year, with MICEX becoming the world's best-performing big market in 2009.

"The Russian market has outperformed in terms of returns, but it had fallen a lot further as well," said James Beadle, chief investment strategist at Pilgrim Asset Management. "It's only natural that it bounced back slightly more than other emerging markets in the rebound."

MICEX finished the week down 2.6 percent at 1002.2 points, after reaching its highest level since October, while RTS finished Friday at 936.27, shedding 0.2 percent after momentarily inching past the 1,000-point mark on Wednesday.

Energy stocks led the MICEX decline, with Gazprom flaring off 4 percent to close the week at 166.21 rubles. LUKoil lost 7 percent, finishing it out at 1,514.44 rubles, while Rosneft bled off 4.2 percent to 174.04 rubles.

Banks weren't far behind, as Sberbank disposed of 2.2 percent to end up at 32.99 rubles, while VTB lost 2.4 percent, closing up the week at 0.04 rubles.

Fertilizer firms saw some growth, however, with Uralkali's global depositary receipt shooting up 23 percent to $18.6, while Acron put on 12 percent to close at $23 on the RTS.

Polymetal, which replaced PIK Group on the MSCI Emerging Markets Index, delivered 6.9 percent to close at 228.84.

But Russian markets will continue to be affected by indicators from the real sector, and those aren't looking good. The country's first-quarter gross domestic product contracted 9.5 percent year on year, according to preliminary State Statistics Service data released Friday.

A big test will come on Tuesday, when April's industrial output figures are released, said Tom Mundy, an analyst at Renaissance Capital.

"The market now is becoming much more focused on the real economy, and there are certainly some dangers that the RTS can crack quite sharply after touching the 1,000-point mark," Mundy said.

"The Russian industrial production data has been pretty horrible, so that'll be a good indication of how the stresses from the crisis have filtered down to the real economy," he added.

Though some are forecasting an improvement from March, when output fell 13.7 percent year on year, Beadle said overall "substantial economic data continues to be quite bad."

Combined with the rally's uncertainty, he said, it all makes for one thing: "a very nervous market."