Deutsche Bank Finds Ruble Value Using BEER Instead of Oil

  • Currency is most undervalued in developing Europe, model shows
  • Sees further gains after best EM performance since Jan. 21 low

Deutsche Bank AG has a new reason to like the ruble: BEER.

According to the bank’s Behavioral Equilibrium Exchange Rate model, Russia’s currency is the most undervalued in developing Europe. The ruble is poised for further gains, even after outperforming all other developing peers since touching a record low of 85.999 on Jan. 21, according to analysts led by Alan Ruskin, global co-head of foreign-exchange research in New York at Deutsche Bank, the world’s second-biggest currency trader.

“If crude is stable, I see room for the ruble to strengthen,” said Gautam Kalani, an emerging-markets strategist at Deutsche Bank in London, declining to provide a specific forecast. According to the median of economists surveyed by Bloomberg, the currency will strengthen to 72 against the dollar by the end of the year, from 73.771 at 11:54 a.m. in Moscow.

Even as Russia struggles with recession and international isolation, there are signs of economic strength underpinning the ruble, according to Deutsche Bank. The nation’s current-account surplus and $379 billion of foreign-currency reserves make it the only major emerging market that added reserves this year through Feb. 19. Meanwhile, crude prices are recovering after Russia and Saudi Arabia agreed to freeze output.

Oil and natural gas, the source of 45 percent of Russia’s revenue, began a downward spiral in 2014 just as the U.S. and European Union imposed international sanctions that effectively shut foreign capital markets to Russian borrowers.

The BEER model was developed in 1999 by British economists Peter B. Clark and Ronald MacDonald. It seeks to value a currency based on real exchange rates and economic fundamentals. The ruble’s real effective exchange rate, which adjusts for inflation, fell in January to the lowest level in 12 years against a basket of currencies representing Russia’s main trading partners, according to Bloomberg calculations.

The ruble’s 16 percent rebound since its trough has virtually erased this year’s loss, paring it to 0.3 percent.

“The ruble is one of the most undervalued currencies on our BEER valuation metric,” Ruskin wrote in a note to clients this week. “There are some reasons to be constructive.”

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