Russian equities stay attractive for foreign investors
International investors show their interest in the Russian stock market as the country's financial instruments looks more profitable than in the developed countries. The forecasts are to be moderately positive, but analysts recommend not to have overweight positions in Russia because the country remains too government-controlled.
Although the foreign media headlines concerning Russia are mostly full of criticism, it does not repel investors from abroad, reports Barron's. They praise Russia's Central Bank for the painful decision to let the ruble depreciate significantly in 2014 and 2015. Together with some other unpopular moves by Elvira Nabiullina it has finally led to positive changes in the country's economy.
As a result, the Russian ruble has won 13% against the U.S. dollar in 2016. The MSCI Russia Index looks even better, having increased by 24% this year. Being weakened by Western sanctions and the military activity in Syria, Russia's GDP is expected to lose 0,8% in 2016.However, it is expected to return to positive figures in 2017 with a 1,1% growth, the International Monetary Fund estimates. The yield on the 10-year Russian government local bond is 8,6%.
The analysts of Bank of America Merrill Lynch consider that Russian stock market should benefit from higher oil prices and an improving economy. They recommend investing in high-quality names, which 'will likely continue to outperform the market.' The analysts believe that Russia's economic recovery will also continue to stimulate growth of Sberbank's shares.
Gary Greenberg, head of Hermes Emerging Markets, also expects the Russian economy to continue to recover in 2017 from the recent recession. 'In the short term, the outlook for Russia is positive thanks to a recovery in the oil price,' he said to Morningstar, 'The investment on oil production has lagged a lot in the last couple of years. It's entirely possible for the oil price to go up to $65 per barrel in the short term.' Hugo Bain, senior investment manager at Pictet Asset Management, agreed, saying that as long as oil price remains above $40 a barrel, any economic growth in Russia should benefit Russian equities.
Even so, most of the Western investors believe that Russia remains a high risk, high return asset class, as it is volatile and cyclic. In many ways, the future growth of the country's economy depends on its foreign policy. If Russia remained disengaged from the rest of the world, the technology improvement would probably be limited as the country would be ignored by the international players. 'Russia's policies are not focused on competition, improving quality of education or opening up economy for idea investment. Therefore, in today's hyper competitive connective digital world, Russia is falling behind quickly. It has little hope of catching up because in essence they are not even trying,' said Greenberg.