PineBridge Says Buy Russian Real Estate to Retailers

PineBridge Investment LLC and OAO Sberbank are recommending investors buy Russian real-estate companies and retailers on prospects the industries will benefit from rising incomes in the world’s biggest country.

Grocer OAO Dixy Group and electronics retailer OAO are PineBridge’s top picks for Russia in 2014, the company said in a report yesterday. Sberbank’s recommendations for 2014 include supermarket operators OAO Magnit and X5 Retail Group NV, as well as developer Etalon Group Ltd. The Bloomberg Russia-US Equity Index of the most-traded Russian stocks in the U.S fell 0.4 to 98.52 yesterday, led by OAO Mechel.

PineBridge, the money manager controlled by Hong Kong billionaire Richard Li, joins Sberbank and Bank of America Corp. in recommending buying Russian consumer equities amid the cheapest valuations among developing nations. Russian retail sales rose at a faster pace than economists predicted in November as unemployment fell and real wages grew, tempering concerns about slowing economic growth.

“A closer look at Russia reveals an abundance of potentially rewarding investment opportunities with strong growth characteristics and attractive valuations,” Robin Thorn, PineBridge Investments’ global head of equities in New York, who helps manage $19 billion, said by e-mail yesterday.

Dixy trades at the lowest multiple to estimated earnings in 18 months while’s valuation has decreased 60 percent in three years.

‘So Late’

The nation’s benchmark Micex Index trades at 4.4 times estimated earnings, compared with ratios of 15.3 for India’s S&P BSE Sensex Index, 9.9 for Brazil’s Ibovespa and 7.9 for China’s Shanghai Composite Index, according to data compiled by Bloomberg.

“Russia is so late in terms of demand that slower economic growth doesn’t even matter,” Kingsmill Bond, the chief strategist at Sberbank CIB, an investment arm of Russia’s biggest lender, said by phone from Moscow yesterday. “Demand for goods and services, particularly housing, will continue to grow as penetration is very low.”

PineBridge’s recommendation on Russian equities comes a day after Bank of America Corp. said in a report it favors Russian retailers as a rebound in the $2 trillion economy should drive gains in Magnit and X5. While the world’s biggest country by area is posting the weakest expansion since 2009, Russia is forecast to be Europe’s largest retail market by 2018, according to Euromonitor research.

Trading at Discount

Etalon dropped 0.6 percent to $5.40 by 12:10 p.m. in London today. OAO LSR Group, Russia’s biggest listed homebuilder, gained 1.6 percent to 606.80 rubles in Moscow today and PIK Group, the second-biggest, fell 0.8 percent to 69.95 rubles.

“The most attractive names in Russia are not necessarily the very large companies,” PineBridge’s Thorn said. Aside from retailers and real estate developers, Thorn believes in “all stocks with local listings trading at a discount to global depositary receipts.”

Magnit rose 0.2 percent to $61.70 in London today, trading at a 14 percent premium to the Moscow-traded shares. X5 dropped 0.3 percent in London to $17.56.

Mechel slipped 2.2 percent to $2.26 in New York yesterday, trading at a 15 percent premium to the company’s Moscow-listed shares.

OAO Mobile TeleSystems, Russia’s biggest mobile phone company, declined 1.8 percent to $19.89, the lowest level since Dec. 5, trading at a 6.4 percent premium to the shares in Moscow.

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