HSBC Sees Putin Stake Sales Shrinking Discount: Russia Overnight
President Vladimir Putin’s plan to sell government assets will bolster Russian stocks, shrinking the discount on the world’s cheapest emerging market to the least since 2010, according to HSBC Global Asset Management.
“People will be rediscovering Russia,” Christian Deseglise, who helps oversee $426 billion as a managing director at HSBC Global in New York, said by phone Jan. 30. “Russia will benefit from the planned asset sales and normalization of risk appetite globally.”
Companies on MSCI Inc.’s Russia Index (MXRU) trade at an average 5.6 times estimated earnings, the lowest valuation among 21 emerging markets tracked by Bloomberg and a 49 percent discount to the MSCI Emerging Markets Index. (MXEF) The gap will narrow to 30 percent in 2013, according to Deseglise, as Putin seeks $10 billion by reducing state investment in companies including tanker owner OAO Sovcomflot and bank VTB Group. The last time Russia traded at a 30 percent discount was in January 2010.
The Bloomberg Russia-US Equity Index (RUS14BN) of the most-traded Russian stocks in the U.S. rallied 0.9 percent yesterday to 105.46, the highest level since April. It rose 6.2 percent in January. The MSCI Russia gained 0.3 percent yesterday to cap a second monthly advance of 6.3 percent. American depositary receipts of OAO Sberbank (SBRCY), the country’s biggest lender, soared to a five-month high in the U.S.
Futures expiring in March on the RTS Index added 0.6 percent to 162,870 by 5:09 p.m. in Moscow today.
The world’s biggest energy exporter wants to reduce state involvement in companies as it seeks to lure more foreign investors and stem capital flight. The government sold 217 billion rubles ($7.2 billion) of shares last year, according to the Federal Property Management Agency, below the Finance Ministry’s initial target of 300 billion rubles.
Government shares in state-run companies should be sold on Russian exchanges, Putin said at a meeting of officials last week.
Russian equities lagged behind other emerging markets last year, with the MSCI Russia advancing 9.6 percent in 2012, trailing a 15 percent jump in the MSCI emerging-markets gauge. The benchmark Micex Index’s 5.1 percent rally this year compares with a 1.8 percent increase in the BSE India Sensitive Index (SENSEX) and the 1.4 percent decline in Brazil’s Bovespa (IBOV) gauge. The Micex was beaten by the Shanghai Composite Index, which has added 6.6 percent and entered a bull market in January.
HSBC Global is “significantly overweight” Russian stocks and manages more than $1.2 billion of Russian equity investments, Deseglise said. The HSBC Global Investments Russia Equity Fund (HSBRUSU) has returned 5.2 percent in 2013 and beaten 51 percent of peers, data compiled by Bloomberg show.
“We particularly like Russia’s transportation sector, including railways and airlines as the nation plans to develop its infrastructure,” he said. “We like Russia. We like how cheap it is.”
Russia is building a high-speed rail link from Moscow to the Black Sea city of Sochi for the 2014 Winter Olympic Games. It is also constructing a metro line to the ski fields and airport and will boost infrastructure investment in the capital and other cities in preparation for the soccer World Cup, to be held in Russia in 2018.
The Market Vectors Russia ETF (RSX), the largest dedicated Russian exchange-traded fund, rose 0.8 percent to $30.82 in New York yesterday, adding 3.1 percent in the month. The RTS Volatility Index, which measures expected swings in the stock futures, plunged 8.8 percent to 18.99 today.
Rising oil prices will also bolster Russian stock valuations, Deseglise said.
Crude for March delivery pared its 6.2 percent advance in January today, losing 0.2 percent to $97.27 a barrel in New York. Brent added 0.5 percent in London to $116.17 a barrel, while Urals crude was little changed at $114.49. Russia’s chief export oil blend climbed 4.3 percent last month, the most since August.
Russia’s government gets about 50 percent of its revenue from the oil and gas sector and crude is the nation’s biggest export earner.
Sberbank ADRs rallied 2.7 percent to $14.73 in New York yesterday, the highest close since Aug. 2, 2011.
The state-controlled lender said its depositary receipts program has “nearly reached” the overall limit for the creation of DRs, according to a statement on its website. DRs can only account for 25 percent of a company’s shares and 50 percent of its listed shares under Russian regulations. Sberbank’s ADRs are equivalent to four ordinary shares.
CTC Media Inc. (CTCM) soared 38 percent in January, a record start to a year for the Russian media company and the biggest gain on the Russia-US index in the month. The shares rose 1.8 percent to $10.70 yesterday, the highest level since May, on trading volume that was more than three times the daily average over the past three months.
The Micex will beat gains in other emerging markets for a third month as high dividends and low volatility lure investors, Bruce Bower, a partner at Verno Capital in Moscow, which manages about $200 million, said in an interview yesterday. Fifty-day volatility on the Russian benchmark fell to the lowest level in at least 10 years.
The ruble rallied 1.3 percent to 30.0260 versus the dollar in January, and was little changed at 34.8597 yesterday against the dollar-euro basket used by the central bank to manage swings that hurt exporters. Ruble futures show the currency strengthening 0.3 percent to 30.175 per dollar in Moscow today.
Russia’s economy will expand 3.5 percent in 2013, Deputy Economy Minister Andrei Klepach said Jan. 29. Economic growth slowed to 3.4 percent in 2012, from 4.3 percent in 2011, the Federal Statistics Service said yesterday.
Putin, 60, returned to the presidency in May after a stint as prime minister and Human Rights Watch said in a report issued yesterday that the nation is waging the worst crackdown on civil society since the Soviet Union’s collapse. Russia had the worst score among the Group of 20 advanced economies in Transparency International’s 2012 Corruption Perceptions Index.
“Russia is very undervalued,” Joseph Dayan, head of markets at BCS Financial Corp. said in a Jan. 30 interview in London. “Some foreign investors think that Putin will come and take your money. This misperception from financial investors has created an opportunity.”
United Co. Rusal (486), the world’s largest aluminum producer, lost 0.9 percent to HK$4.65 in Hong Kong, the lowest close since Dec. 4. Rusal is based in Moscow.
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