As Russian companies pay out an estimated 875 billion rubles ($15 billion) in dividends this year through July, some asset managers think foreigners are set to take the money and run.
A 14 percent gain in dollar terms has put Russia among the 10 best-performing markets after the worlds’ worst drop in 2014. And the Micex Index’s 4.5 percent dividend yield is the highest among the biggest emerging-market benchmarks. While those may look like reasons to be bullish, GL Financial Group and Royal Bank of Scotland Group Plc are among those predicting that slumping oil prices and a worsening economic outlook will prompt shareholders to cash out after they’re paid.
“The dividend season could serve as an opportunity for investors to exit Russian shares,” Sergey Vakhrameev, a money manager at GL Financial, which oversees about $100 million in assets, said by phone from Zurich. “The majority of foreign investors will probably refrain from investing their dividends into Russian shares. The low oil price, sanctions and economic slowdown haven’t gone anywhere.”
An 11 percent slide in the ruble from this year’s May high, the extension of sanctions linked to the Ukraine conflict and oil trading at about three-fifths its five-year average price have added to concern that the world’s biggest energy exporter will struggle to recover from what economists forecast will be its first recession since 2009. The dollar-denominated RTS Index has slumped 17 percent from this year’s peak in May.
Companies have already distributed about 278 billion rubles in dividends from their 2014 profits since annual payments began in May, of which about $3.5 billion has been converted into foreign currencies to pay investors in depositary receipts and foreign institutional holders, according to Sberbank CIB. The rest of the payouts are expected to be made by the end of July.
The standoff over Greece and the market turmoil in China have weighed on Russian assets, raising questions about the country’s ability to endure the stresses facing the global economy. Economists estimate that Russia’s gross domestic product will contract 3.5 percent this year. Low oil prices have exacerbated the impact of financing restrictions and other measures the U.S. and its allies have imposed to punish President Vladimir Putin for supporting a rebellion in Ukraine.
“I’m still pretty cautious,” John-Paul Smith, the founder of Ecstrat, a London-based research firm, said by e-mail. “The structural factors are the same, namely the increasing antipathy between Russia and the West and the risk that the Kremlin will use parts of the listed corporate sector as a cash cow to support the more obviously vulnerable parts of the economy.” Smith is underweight Russian stocks.
Russia’s economy will probably expand 0.5 percent next year, Bloomberg surveys show. Traders pulled $79 million from Russian equity funds in the week ended July 8, compared with the $116.8 million withdrawn the previous week, according to Sberbank CIB, which cited EPFR Global data.
The Micex trades at 5.9 times 12-month estimated earnings, the cheapest among emerging markets, data compiled by Bloomberg show. Combined with the dividend yield, low valuations of Russian shares can prompt some fund managers re-invest their payouts in Russian equities, according to Raiffeisen Capital’s Vladimir Vedeneev.
“Investors are greedy people and the Russian market is very cheap,” Vedeneev, the chief investment officer at Raiffeisen Capital in Moscow, said by e-mail.
The Micex added 0.6 percent to 1,633.87 by 4:08 p.m. in Moscow. The RTS advanced 0.3 percent.
The largest Russian exporters still haven’t paid their dividends. OAO Rosneft, the nation’s biggest oil producer, is set to distribute 87 billion rubles on July 13. OAO Gazprom, the nation’s biggest natural gas producer, is scheduled to pay out 165 billion rubles on July 30.
“I think foreign investors are more likely to repatriate dividends,” Tatiana Orlova, the chief Russia economist for Royal Bank of Scotland Group Plc in London, said by e-mail. “The gloomy macro outlook and the poor geopolitical environment -- not to mention the low oil price which may stay at the current levels for two to three years -- are likely to affect their decision.”
Brent crude, the oil grade traders use to price Russia’s main export blend, tumbled below $60 last week for the first time since April amid mounting concern about economic stability in Europe and Asia. Oil is Russia’s biggest export and, along with natural gas, accounts for about half its budget revenue.
A collapse in retail sales continued with a 9.2 percent plunge in May from a year earlier, after a revised 9.6 percent slide in April. Data also showed that a slump in fixed-capital investment worsened and stretched into a 17th month as real wages and disposable incomes continued to fall.
“The people who are actually looking to profit-take may not reinvest and may get worried about the impact of sanctions and look for other places to invest,” Alper Ince, who helps oversee $9.7 billion as managing director of Pacific Alternative Asset Management Co. in Irvine, California, said by phone. “We’ll probably stay put -- we are not going to increase our allocations.”