By Andrew Winterbottom
Russian stocks are up today, for the fifth day in a row and at the highest level in two weeks. What’s going on? As we wrote here earlier in the week, foreign investors have been fleeing this market. However it could be that some of them are starting to put aside concerns about the potential for further sanctions on Moscow and are scouring Russia’s stock markets for contrarian buying opportunities.
Russian stocks, chronically undervalued, are trading now at a discount of more than 60 percent to broader emerging markets, and to China which by all accounts is the standout beneficiary of the Russian woes. Just how cheap Russian shares are can be gauged from the fact they trade at a discount event to turbulent Pakistan. Here is a link that compares Russian equity valuations with other emerging and developed markets: http://link.reuters.com/guv77v
While tensions between Russia and the West look to be only increasing, the risks of investing in Russia at present are obvious. But with greater risk comes greater potential reward, says Jonathan Bell, head of emerging market equities at Nomura Asset Management:
Even for the level of risk the market is extremely cheap… We’ve had price movements due to technical behaviour and short-term considerations that don’t necessarily reflect the underlying fundamentals.
Bell likes the IT and domestic brand name sectors – those not in danger of feeling the hit of further sanctions but that have fallen alongside companies that have been hit with Western sanctions, such as Sberbank and Gazprom.