- Spread between DRs and local shares shrinks amid selloff
- Ruble has retreated the most in emerging markets in 2016
International investors are exiting their investments in some of the most liquid Russian companies as soaring volatility in the country’s stocks and currency push them to turn to less risky assets.
They are getting out of Russian stocks faster than local traders are selling shares on the Moscow Exchange, causing the valuation gap between onshore and offshore-traded equities to narrow to levels not seen in as long as a year. The asset dump comes after oil, the country’s main source of revenue, plunged to a 12-year low last week and the ruble retreated the most among developing-nation peers.
The spread between the London-traded global depositary receipts of food retailer Magnit PJSC and local shares shrank to almost the narrowest in a year -- 22 percent as of Thursday. The GDRs of mobile phone carrier Megafon PJSC and oil producer Gazprom Neft PJSC, which have both traded at a premium to their Moscow listings in the past 12 months, are now priced at a discount in London.
“Foreigners can quickly sell Russian shares and go somewhere else in emerging markets where they can get relatively good returns for less risk,” Anastasia Levashova, a money manager who helps oversee $450 million in emerging-market equities at Blackfriars Asset Management Ltd. in London, said by phone last week. “Local investors are more resilient to the roller-coaster in the Russian market and more willing to hold on to their shares, as they have much fewer alternative tools.”
This thinking bears out in how Russian stocks perform abroad versus at home.
Magnit has dropped 12 percent in London in 2016, while the stock was unchanged in Moscow in that same time span, impervious to the selloff in the ruble and oil. Megafon has fallen 13 percent in London, twice as much as in Moscow. Gazprom Neft has lost 14 percent in London and 6.3 percent in Moscow this year.
Russia limits depositary receipt conversion to 25 percent of a company’s shares and 50 percent of listed stock. Companies like Magnit have already reached their limit so premiums abroad are higher.
“The companies whose depositary receipts had the highest premiums were among those whose business was simple and clear for investors,” Oleg Popov, a money manager at the Moscow-based April Capital, said by phone last week. “The sentiment to Russia as a whole is gradually deteriorating among some foreign investors, so the premiums investors were willing to pay are now fading away. It’s a matter of supply and demand.”