Russian stocks - cheapest price in the world
There are vast opportunities - and risks - in the Russian stock market. Russian companies are currently priced the lowest in the world measured by corporate earnings, and at the same time economic reforms will render Russia an even more attractive market among investors.
The portfolio managers responsible for Danske Invest’s investments in the Russian market have no doubts: There is a great potential in the Russian stock market right now.
”In our view the Russian market will outperform most other markets in 2012. The Russian stock market is currently the cheapest stock market in the world, and Russian stocks are trading at a significant discount relative to the global emerging markets," says senior portfolio manager Måns Beckeman at Danske Capital, who is a member of the team managing Danske Invest Russia. Measured relative to earnings levels, the price of Russian stocks is currently the cheapest in the world.
Increasing oil prices are good news
One of the reasons for the optimism and confidence in the Russian stock market potential is the increasing oil prices, which is good news for Russia, explains Måns Beckeman. This is so because Russia is the world’s largest oil producer, the largest exporter of natural gas and the world’s third largest exporter of steel and aluminium.
”The high oil price is yet another reason why Russian stocks are attractive right now. Russia is highly dependent on the price of oil and of other commodities, since 50% of the country’s budget receipts stems from oil and gas taxes. Of course there is a risk that the price will fall, but there are factors that are underpinning high prices. Political unrest in the Middle East, growth within emerging markets and increased production costs, since more and more oil is being produced in more remote regions and drilled at deeper water depths or offshore,” Måns Beckeman explains.
Reforms will attract even more investors
However, it is also risky to be so dependent on high oil prices. According to Måns Beckeman there is hope that Russia will implement a number of reforms that can diversify the Russian economy and thus pave the way for increased investor appetite vis-à-vis the Russian market. Also the opposition in Russia has demanded reforms to discontinue corruption, and Måns Beckeman and his colleagues expect that these reforms will be implemented. This will make it even more attractive to invest in Russia, he argues. Moreover, Russia has become a member of the world trading organisation, WTO, and according to Måns Beckeman the membership will also be prompting for less bureaucracy.
Since Russia still belongs among the so-called emerging markets, there are many areas within which Russia is lacking behind the developed markets. One example is infrastructure. Russia needs to make huge investments in infrastructure such as roads, motorways, bridges, airports, etc. to ensure that the Russian economy can develop to the extent of its potential. Here particularly two events will provide a boost to the construction projects, explains Måns Beckeman. These are the Winter Olympics 2014 and the soccer world cup 2018.
One example of a company that is involved in infrastructure development is Mostorest, which is primarily constructing motorways and bridges. Danske Invest Russia is currently investing 4.74% of its assets in this company.
During the past three months, the sub-fund Danske Invest Russia has increased 9.60% (between 17 January 2012 and 17 April 2012).
