Pictet Asset Management SA, which manages about $5 billion of high-dividend equities, is boosting Russian stock holdings on speculation companies will increase payouts to burnish their appeal to foreign investors.
“One of the ways for Russian companies to show higher corporate governance is to raise the dividend payout ratio,” Stephen Burrows, a senior investment manager at Geneva-based Pictet Asset, a unit of Switzerland’s largest privately owned bank, said in an interview in Santiago March 4. “Asia has had a relatively high payout ratio relative to other parts of the world and that is what is now changing.”
Pictet Asset is shifting out of Asian equities and into Russian stocks such as oil producer OAO Surgutneftegas, Burrows said. The Bloomberg Russia-US Equity Index of 14 Russian companies traded in the U.S. has an average dividend yield of 4.1 percent, while the benchmark 50-stock Micex Index’s yield was 3.8 percent March 4, the highest level since March 2009. The MSCI Emerging Market Asia Index (MXMS) yields 2.3 percent, down from a six-month high of 2.8 percent in June.
Russian stocks trade at 5.6 times estimated earnings, the cheapest of 21 emerging markets tracked by Bloomberg and about half the valuation for Brazilian equities. The country, ranked the most corrupt among Group of 20 nations in Transparency International’s 2012 corruption perceptions index, approved regulations in November requiring state companies to pay no less than 25 percent of net income as dividends as Russia seeks to lure more foreign capital and bolster its reputation.
Burrows helps manage Pictet Asset’s Emerging Markets High Dividend (PEMHDPU) fund, which he said includes companies with an average dividend yield of 5.2 percent. The fund has returned 16 percent since it was established in June. Burrows also manages the Pictet Global Selection Fund (PGSFHYE), which has gained 9.6 percent in 2013 to beat 97 percent of its peers, data compiled by Bloomberg show.
The MSCI Emerging Markets Index has an average dividend yield of 2.7 percent and rose 0.7 percent to 1057.45 by 5:07 p.m. in Moscow.
The Bloomberg index of Russian U.S.-traded stocks jumped 2 percent to 101.16 yesterday, gaining for the first time in four days as crude oil, the nation’s biggest export earner, rebounded from a 2013 low. Futures expiring in March on Moscow’s RTS Index added 0.8 percent today to 153,480. The Micex rose 0.8 percent and is up 1.4 percent in the year.
As part of its bid to make Moscow an international financial center and revitalize Russia’s image among global investors, the government hired Goldman Sachs Group Inc. last month. The Moscow Exchange, Russia’s main stock and fixed-income bourse, is transitioning to two-day settlement of transactions and opened up local government bond trading Feb. 7 to Euroclear Bank SA, owner of the world’s largest debt settlement system. The exchange’s current immediate settlement procedures put it at odds with the U.S., Germany and Brazil.
Surgutneftegas’ preferred shares traded in Moscow offer a 12-month gross dividend yield of 9.5 percent, data compiled by Bloomberg show. Goldman Sachs and UBS AG said in January that the Surgut (SGTPY), Russia-based company has about $30 billion in cash, raising the prospect that it has “room to increase the payout ratio,” said Burrows, who was in Chile for an investor conference organized by Santiago-based brokerage Larrain Vial SA.
American depositary receipts of Surgut, Russia’s fourth- biggest oil producer by output, advanced 2.5 percent to $7.28 yesterday in New York, the biggest gain since Jan. 30. The company’s preferred stock increased 1.4 percent to 22.72 rubles, or 74 U.S. cents, in Moscow today. One ADR equals 10 preferred shares.
The Market Vectors Russia ETF (RSX), the largest dedicated Russian exchange-traded fund, rose 1.3 percent to $28.84 in New York, posting the steepest advance since Feb. 13. The RTS Volatility Index, which measures expected swings in the stock futures, fell 5.4 percent to 20.32 today.
State-controlled OAO Gazprom, Russia’s biggest company by market value and the world’s No. 1 natural gas producer, has a 12-month gross dividend yield of 6.6 percent, compared with 3.6 percent for PetroChina Co., China’s biggest oil and gas producer, and 5.9 percent for Total SA, Europe’s third-largest oil company, data compiled by Bloomberg show.
Pictet Asset also recently bought stock of Hong Kong-based retailer Bosideng International Holdings Ltd. (3998) and Valid Solucoes SA (VLID3), a Rio de Janeiro-based company that prints bank checks, credit cards and identification documents, Burrows said. Bosideng gained 4.6 percent last year, while Valid soared 109 percent.
The fund dropped Shin Corp (INTUCH), a telecommunications company based in Bangkok that gained 0.7 percent last quarter. Shin’s 5 percent 12-month dividend yield has fallen from 9.1 percent in January.
Polyus Gold International Ltd. (PGIL), Russia’s largest producer of the metal, jumped 3.8 percent to $3.32 in New York yesterday, the steepest gain since Jan. 24. Barclays Plc rated the company’s London-listed stock the equivalent of buy in first time coverage. Polyus fell 0.7 percent in London today, after jumping 3.2 percent yesterday.
Russian billionaires Zelimkhan Mutsoev and Gavriil Yushvaev bought Brooklyn Nets owner Mikhail Prokhorov’s 37.8 percent stake in Polyus for $3.62 billion after winning approval from U.K. regulators, Prokhorov’s Onexim Group said in a Feb. 22 statement.
Ruble futures show the currency strengthening 0.1 percent to 30.73 per dollar. Urals crude, Russia’s chief export blend, climbed for a second day, adding 0.1 percent to $108.59 a barrel, after ending a six-day slide yesterday.
Moscow-based United Co. Rusal, the world’s largest aluminum producer, rallied 1.9 percent to HK$4.29 in Hong Kong, the first advance this week.
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