The rout in Russian equities showed signs of ending yesterday as President Vladimir Putin’s push to ease the Ukraine conflict spurred the biggest gain since March while two of the largest emerging-market money managers said they’ve been buying cheap shares.
The Bloomberg index of the biggest Russian companies listed in the U.S. climbed 3.3 percent after the benchmark Micex gauge in Moscow jumped 3.4 percent as Putin said he was pulling troops away from the Ukrainian border. Yesterday’s gains trimmed losses in the two benchmarks since Russia's incursion in Ukraine began in early March to less than 6 percent.
Aberdeen Asset Managers Ltd. and Skagen AS said yesterday -- a day after Deutsche Bank AG strategist John-Paul Smith predicted a Russian stock market rebound -- that they’ve been buying equities recently because the selloff is overdone. Aberdeen’s Peter Taylor boosted his investment in OAO Magnit while Skagen bought shares of OAO Moscow Exchange and OAO Sberbank.
“We’re contrarian and right now Russia is seen as worst of the worst,” Ole Soeberg, who helps manage about 122 billion kroner ($20.6 billion) at Skagen in Stavanger, Norway, said yesterday in an interview. “So many imperfections are priced in and hence the downside is limited from here. If there’s a normalization of the geopolitical situation then it’s likely that equities will rebound fairly quickly.”
Taylor, who helps oversee about $2 billion in Russian assets from London for Aberdeen, increased his investment in Magnit, saying the country’s largest retailer isn’t exposed even if more sanctions are implemented. Skagen bought shares of Moscow Exchange and Sberbank, Russia’s largest lender, over the last month on attractive valuations as long-term growth prospects are good once the situation in Ukraine normalizes, Soeberg said.
“Russia has gone from very cheap to very very cheap,” Aberdeen’s Taylor said yesterday at an event in New York. “What we found in Russia is it was rather an indiscriminate selloff,” he said. “We’ve had very good companies that don’t have any obvious sanctions angle, something like Magnit which is one of our core holdings in Russia.”
Global depositary receipts of Magnit added 1.9 percent to $49.60 in London, reducing their 2014 slump to 25 percent. ADRs of Sberbank rose 6.1 percent to $9.20 in New York yesterday, cutting their retreat for the year to 27 percent. Moscow Exchange gained 2.4 percent to 55.60 rubles in Russian trading and is down 14 percent year-to-date.
Smith, the Deutsche Bank strategist who predicted Russia’s 1998 stock market crash and has been bearish on the country for more than three years, says investors are overreacting to the conflict in Ukraine.
The worst may not be over for holders of Russian stocks as the political situation remains fluid, said Anvar Gilyazitdinov of Ryan, Man & Gor Securities.
“The market is still in limbo,” Gilyazitdinov, who manages about $10 million in Russian equities at Ryan, Man & Gor, said by phone from Moscow yesterday. “We still don’t know what to expect.”
Ukraine’s border service said it wasn’t able to confirm the pullback, and that military drills near the frontier continued. Pentagon spokesman Army Col. Steve Warren told reporters yesterday that “we have seen no change in the Russian force posture along the Ukrainian border.”
Earlier this week a Putin spokesman pointed to escalating violence as proof that proceeding with Ukraine’s presidential election on May 25 is “absurd.” President Barack Obama and German Chancellor Angela Merkel said the success of the election will decide whether the U.S. and the European Union impose further sanctions on Russia for its actions in Ukraine.
Equities on the Micex are near the cheapest levels since 2009. The benchmark trades at 4.9 times estimated 12-month earnings, compared with a valuation of 14 for India’s S&P BSE Sensex Index and 11 for Brazil’s Ibovespa.
Skagen manages about 46 billion kroner in Kontiki, its emerging market fund which has a net exposure to Russian assets of about 7 percent, Soeberg said. Aberdeen Asset Managers oversees about $50 billion in developing-nation equities.
“Russian stocks are generally inexpensive because of investor perceptions about governance,” Skagen’s Soeberg said. “But the facts are that Russian business life is becoming more dynamic,” he said. “There’s a good base for broad economic growth.”