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Russia market "significantly undervalued"
28 March 2014
Russian market still deemed to offer value
Russian market is significantly undervalued and poses
significant opportunities for long-term investors, according
to ING IM International.
The firm said that while caution towards Russia is advisable in
the short term, there is significant upside potential for
longer term investors.
The market is undervalued in the absence of any further
escalation, the firm added.
Nathan Griffiths, lead portfolio manager emerging markets
equities at ING IM said, "The direct economic impact of
sanctions is very limited. There are indirect impacts though,
as the central bank decided to calm financial markets by
raising interest rates by 1.5%, a move will further weaken an
already struggling economy".
"At the same time, the situation has accelerated capital
outflows that now stand at almost $70bn and considering that
international companies will probably put all inward
investments on hold, we believe this will further stunt the
economy and potentially lead to a recession in 2014."
"Despite the attractive valuations, we remain cautious on the
outlook for the Russian equity market in the short term. Up
until now, there is a greater risk of escalation than a roll
back of moves. Also, the concerns that foreign investors have
about the risk to their holdings in the country mean they are
more likely to reduce than increase exposure, which could lead
to further market weakness. Nevertheless, equity markets are
inherently resilient to these kinds of crisis situations and
Russia has always been a higher risk market."
"Our current investment strategy is to hold relatively high
cash balances, because of the fluidity of the situation.
Furthermore, we have a preference for companies with
jurisdictions outside of Russia. When events stabilise we will
become more constructive."
The real fear is for a further weakening of economic growth and
the risk for escalation as provocations abound, which may spark
further hostilities, adds Philip Scrève, senior fund
manager emerging markets Candriam. "The Russian stock market
will likely remain capped by the fear of further sanctions and
On valuation levels of Russian stocks declining to their lowest
level since the Russia-Georgia conflict in August 2008, he
observes that the Rouble and the Hryvnia have lost over 10%
since the beginning of the year and while Russia as a country
has a very strong balance sheet, certain Russian companies tend
to have relatively high levels of external debt.