Sam Vecht, head of BlackRock’s emerging Europe equity team, has upped his weighting to Russia by 15% in recent months, on the view the country's equity market could significantly re-rate.
Sam Vecht, head of BlackRock’s emerging Europe equity team, has upped his weighting to Russia by 15% in recent months, on the view the country’s equity market could significantly re-rate.
The manager (pictured) said he is more bullish on Russia than he has ever been and exposure to the country has risen to 62% in his £128m Eastern European trust.
He said on any valuation metric, Russian equities are too cheap to ignore, although the market is one of the most volatile in the world.
Russia's RTS index has shed 28% year-on-year, paying the price for its heavy reliance on global oil and gas prices, which have experienced a turbulent year.
However, Vecht said the country's strong top-down fundamentals are being misunderstood by investors, which has led to the entire market being mispriced.
"Russia's debt to GDP is only 10%, inflation has now cooled to a record low at just over 6%, while unemployment has fallen to a four-year low. Yet despite this, equities are trading on a 12-month forward P/E ratio of just six times," said Vecht.
"Russian equities are so cheap that companies are buying back their own shares, while some have so much cash on their balance sheets they could potentially buy back their own stock within two years.
"The cheap valuations will be a catalyst for risk appetite to return to the market, resulting in a significant re-rating over the next 12 months."
This article was first published on Investment Week