Global Investing

Russia: There’s cheap and then there is “near-death” cheap

Russia’s equity market has always been cheap, argues USAA‘s Wasif Latif, but at present levels it is just too cheap to ignore. Russia’s economic decline, driven by not only falling oil prices, its main source of income, but also Western sanctions over its intervention in Ukraine has caused a major sell-off that Latif and other asset managers believe is an overshoot. This has brought Russia’s benchmark dollar-denominated RTS stock index to its lowest level since March and before that, a level not seen since Sept. 2009.

“We’re not looking for it to go way up, but looking for it to go up from its near-death cheap to its normal-cheap condition,” said Latif, head of global multi-assets at USAA Investments.

From a high in late June through Oct. 3, the RTS stock index is down over 23 percent. Its market cap is just over $418 billion while the price/earnings ratio is 6.45 with a dividend yield of 4.86 percent.  RussiaRTSstockindexJune2014-Oct2014

The Russian benchmark stock index has dropped 23.15 percent from a recent high in June, 2014.

“Russia, with its warts and all such as its governance issues, poor capital allocations has always been cheap…. We’re buying it in small amounts and by no means are we backing up the truck and loading up on Russia. We are mindful of the risks and buying selectively. We’re more comfortable buying through the ETFs (exchange traded funds) such as the Van Eck Market Vectors Russia or the iShares MSCI Russia Capped fund,” Latif said.

Pakistan, Nigeria, Bulgaria… the cash keeps coming

The frontier markets juggernaut continues. Here’s a great graphic from Bank of America/Merrill Lynch showing the diverging fund flow dynamic into frontier and emerging equity markets.

What it shows, according to BofA/ML  is:

Frontier market funds with year-to-date inflows of $1.5 billion have decoupled from emerging markets ($2.1 billion outflows year-to-date)

In other words, frontier fund inflows since January equate to 44 percent of their assets under management (AUM), the bank says.

New frontiers to outpace emerging markets

Fund managers searching for yield are increasing exposure to frontier markets (FM) as a diversification from emerging markets (EM), as the latter have been offering negative relative returns since January, according to MSCI data.

Barings Asset Management  said on Monday it plans to launch a frontier markets fund in coming weeks, with a projected 70 percent exposure to frontier markets such as Nigeria, Saudi Arabia, the UAE, Sri Lanka and Ukraine.

Emerging markets indices posted relative negative returns compared to developed and frontier markets in the first quarter, index compiler MSCI’s 2013 quarterly survey showed. The main emerging benchmark returned a negative 2.14 percent for the quarter, with the BRIC index also posting a loss, though a better performance of Latin American markets offered some promising signs  with a 0.48 percent increase.

Three snapshots for Wednesday

Saudi Arabia has repeated publicly it would prime its pumps to meet any shortfall in exports from fellow OPEC member Iran, this chart shows their production since 1980:

Unwelcome news for British finance minister George Osborne ahead of today’s budget – February public sector borrowing comes in at £15.2bn against expectations for £8bn.

Along with the rise in bond yields, expectations for interest rates at end 2013 and 2014 have started to pick up:

Iran looms larger on Gulf radar screens

Tensions over Iran may be helping to push up oil prices as traders worry about a widespread embargo on the country’s crude oil but markets in neighbouring Gulf energy-rich economies are not benefiting.

One year after the Arab Spring started in Tunisia, investors remain sensitive to political risk in the Middle East.

Debt insurance costs have risen sharply this month for gas exporter Qatar and oil giant Saudi Arabia, just as global worries appear to be easing about the euro zone crisis.

PIGS, CIVETS and other creature economies…

Given the ubiquity of BRICs and PIGS, it seems everyone else in the financial and business world is attempting to conjure up catchy acronyms to group economies with similar traits. All with varying degrees of success. BRITAIN-WEATHER/

HSBC chief Michael Geogehan has been championing ‘CIVETS‘ to describe Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa as the next tier of developing economies poised for spectacular growth.

Evoking the skunk-like animal blamed for the spread of the deadly SARS outbreak in Asia is not exactly auspicious but then it will probably be less offensive than the porcine moniker for Portugal, Italy, Greece and Spain. The collective term — with permutations such as PIIGGS to include Ireland and Great Britain among the list of debt-ridden countries — has been denounced by politicians in Portugal and Spain.

from Pakistan: Now or Never?:

“Plan C” – Pakistan turns to the IMF.

Pakistan has agreed with the International Monetary Fund (IMF) on a $7.6 billion emergency loan to stave off a balance of payments crisis. 

Shaukat Tarin, economic adviser to the prime minister, said the IMF had endorsed Pakistan's own strategy to bring about structural adjustments. The agreement is expected to encourage other potential donors, who are gathering in Abu Dhabi on Monday for a "Friends of Pakistan" conference.

The government had long delayed announcing its plans to turn to the IMF for help and President Asif Ali Zardari said in September the country did not want to seek IMF assistance. Tarin said in October that going to the IMF was "Plan C" if other lenders failed to come through.  "If we want to go to the IMF, we can ... but only as a backup," he said.