‘Politics can be quite detached from the stock market’
Investors are buying Russian stocks despite sanctions, as they consider the assets undervalued
Amid a global liquidity boost, Russian equities are attracting attention regardless of geopolitical risks. Investors are lured by quick growth and returns, which are much lower in developed markets.
Russian companies are cashing in on a global equity boom by leveraging growth potential and low valuations, says Reuters. According to analysts and bankers, investors largely ignore geopolitical risks and the risk of further sanctions on Moscow. The latest round of Western nations, which targeted some Russian individuals, hasn’t been so damaging for Russia’s economy so far with stock markets mainly shrugging the move off. On 15 March, the benchmark MOEX index registered a record high of 3,596 points.
“There is an understanding that you need to look to emerging markets for returns, and Russia, on average, is cheaper than many others,” a senior banker working on Russian deals told Reuters. He added that markets did not expect major sanctions, as there was a feeling that political tensions were easing.
Equities analyst of ITI Capital investment company Stanislav Yudin agreed that investors were eyeing growth and returns despite oil price volatility and the risk of sanctions. “In some cases, Russian stocks are in a position to deserve a premium to their peers given superior growth and profitability profiles,” he said.
According to Gazprombank’s equity strategist Ilya Frolov, Russian stocks’ discount to their emerging and developed market peers based on the price-to-earnings ratio has widened from 2020 levels and returned to the historical average of around 50% this year. “Interestingly, this valuation discount persists despite the changing market structure,” he says. Frolov considers the retail, telecom, utilities and metals and mining sectors to be undervalued, while other analysts say that IT developers are also on investors’ radar.
Executive Director of BCS Global Markets Slava Smolyaninov believes that geopolitical risks and investor money are two different narratives that are not talking to each other much. “Money talks and with that in mind, follow the flows, see what investors are doing. Politics and other things, up to a certain point, can be quite detached from the stock market and financial market realities,” he said.
On Monday, Russian gold miner GV Gold announced plans for an initial public offering (IPO), following e-commerce company Ozon’s Nasdaq listing in November and discount retailer Fix Price’s IPO in London in March.