Carnegie Fonder, the Nordic asset manager, has outlined three reasons for remaining invested in Russia in the current environment.
The first reason is improved market sentiment linked to improving relations between Russia and the West. Carnegie said that it was just a few months ago that relations with the US in particular were frosty, but since then the conflict in Ukraine has petered out some more, while Russian president Vladimir Putin has shifted focus to Syria. Although the US and Russia are not in agreement on Syria, “at least they have a common enemy,” Carnegie notes.
This has contributed to the Moscow stock market becoming more acceptable to US investors, which have a considerable impact on the local market. Some 70% of the local free float in Russian stocks is controled by foreign investors, Carnegie estimates.
Russia has continued to improve its standing among business people, which is also helping.
The second key resons relates to relative returns, Carnegie continues.
Price/earnings ratios for Russian stocks are about 5x-6x, while yields are some 5%. This is attractive, despite the prevailing view that Russian stocks should be cheap.
Finally, while the price of oil has halved in recent years, which is hitting the country’s economy hard and a stock market in which more than half of constitutents are oil or gas companies, there are still an increasing number of investors who understand that in contrast to the crisis experienced in 2008-9, the central bank is not trying to defend the ruble, but rather is letting it float and lose value.
This brings with it other challenges, such as expensive imports and problems of inflation, but for both the national budget and companies, the impact of the low oil price is to a degree being softened by the weak ruble, Carnegie states. “Companies that the Carnegie Rysslandsfond are investing in, such as Surgutneftegaz, are continuing to earn good money.”
Carnegie Fonder is the Swedish asset manager, which together with Carnegie Asset Management in Denmark was brought together into a single business with a combined AUM of some SEK175bn (€18.6bn) through a restructuring announced in September 2015.