Pictet’s head of EM sees potential in Russia despite oil price concerns
Concerns over oil prices affecting Russia’s economic growth and financial health are making investors weary of the market, but Pictet Asset Management is convinced that its undervalued stocks hold potential for investors and is overweight Russia in its global portfolio.
Klaus Bockstaller (pictured), Pictet’s head of global emerging markets, comments: “Despite its dependence on energy revenues to fund growth, we believe that Russia’s financial position is more robust than the market suggests. We remain overweight within our global emerging markets portfolios, with a 9% exposure compared to the 6% index weight.
“Pictet AM’s research shows that 85% of Russian stocks monitored are undervalued compared to their global sector peers. Selling on a price/earnings ratio of 4 to 5 times this year and a price/book ratio of 0.8 times, the market looks unduly cheap.”
At the same time, Russia looks attractive from an economic perspective. Bockstaller said: “Rising foreign exchange reserves, a current account surplus and GDP growth of around 4% this year and next, according to estimates by the International Monetary Fund, suggest that Russia’s banks and non-financial companies are rather less vulnerable to exogenous shocks.
“Efforts are also being made to promote dividend payments. In 2011, the then president Dmitri Medvedev, suggested that all state-owned companies should aim for a 25% dividend pay-out ratio. In response, Gazprom intends to double its dividend distribution this year. We consider that these developments will support a re-rating of the equity market.
“We also believe that forthcoming changes to the regulation of Russia’s pension funds represent a significant factor in the development of a domestic equity culture. Plans include allowing non-state pension funds to gain greater access to the growing pool of assets and broadening the list of permissible equity investments within these funds. We believe that over time, demand by Russian pension funds will become an increasing factor in the market, lowering volatility and lifting valuations.”
Geneva-based Pictet & Cie is one of Switzerland’s largest private banks with over €279bn in assets under management and custody at end of March. Its asset management arm, Pictet Asset Management, manages €100bn in assets. It has thirteen business development centres worldwide, including London, Zurich, Frankfurt and Hong Kong.