BlackRock Inc.’s Sam Vecht says there’s still value in Russian stocks after he earned more than 20 percent since March picking up shares hammered by the crisis in Ukraine.
Vecht, who oversees $3 billion of investments as head of BlackRock’s Emerging Europe Equity team, added shares across his emerging market portfolios in OAO Sberbank, Russia’s biggest bank, OAO Magnit, the largest retailer, and natural gas producer OAO Novatek. The benchmark Micex Index of shares has risen 21 percent since March 14, as the U.S. threatened sanctions two days before a referendum on the annexation of Crimea.
The Micex trades at 5.6 times estimated earnings, making it the cheapest measure among 21 emerging markets tracked by Bloomberg. The European Union may announce further sanctions this week, building on the asset freezes and travel bans already imposed on 61 people.
“My view on Russia is that the market continues to be very cheap,” Vecht said in an interview in London yesterday. “The Micex will rebound more providing there are no external factors.”
New penalties would threaten an economy forecast to grow 0.5 percent this year, the slowest pace since a contraction in 2009, according to a Bloomberg survey. Recent signals from Russian President Vladimir Putin that he is willing to work with Ukraine’s new leader sent the Micex to an eight-month intraday high on July 8.
A composite index of Russian services and manufacturing climbed to 50.1 on July 3, the highest since February. The nation’s trade surplus widened to $19.8 billion in April, beating a media economist estimate of $18 billion, the central bank said on June 11.
“The economy is not doing as badly as we thought it would,” Vecht said. “The combination of a cheap market, high dividend yield, earnings downgrades not really happening -- it’s quite a good backdrop.”
Money managers from Schroder Investment Management Ltd. to JPMorgan Chase & Co. said they sold Russian stocks in March. JPMorgan upgraded them on June 19 after the Micex had entered a bull market. About 50 percent of the funds in the BlackRock Emerging Europe Plc trust were invested in Russia as of May 31, making it the biggest country in the portfolio. Sberbank has the largest weighting, making up 10 percent, according to data on BlackRock’s website.
Vecht also added to his positions in Ukraine in early March, increasing his holdings of Mironovskiy Hleboproduct SA (MHPC), the country’s largest poultry producer, after the company slumped 27 percent from its January high through Feb. 20.
“The Russian market has gained since March and, on the ground, not that much has actually changed,” Vecht said. “There’s still de-facto conflict between different groupings in eastern Ukraine. The only difference is people’s perception of what’s going on.”
To contact the reporter on this story: Natasha Doff in London at firstname.lastname@example.org