Russian Stocks Trade Near Record as Valuations, Ruble Lure Fundsby
Investment inflows average weekly $72 million since June
VTB 24: weaker currency makes ruble-priced shares opportunity
Russian stocks approached record highs as investors seized on a weaker ruble and the prospect of long-term stimulus from global central banks as they purchased equities trading below the valuations of their developing-nation peers.
The ruble-denominated Micex Index added 0.2 percent to 1,947, advancing for the fifth day in six and trading 1.4 percent off a record high reached on April 21. The currency slipped 0.7 percent to 66.48 per dollar by 5:35 p.m. in Moscow, extending its drop this quarter to 3.9 percent, the third-most among 24 emerging-market currencies tracked by Bloomberg.
Russian equity funds have seen an average weekly inflow of $72 million since June, according to Sberbank CIB, as weaker-than-expected U.S. data fuel bets the Federal Reserve will keep interest rates lower for longer, driving funds into higher-yielding developing markets. Companies on the Micex trade at 6.65 times projected 12-month earnings, almost half the multiple for the MSCI Emerging Markets Index.
"The markets are betting on support from regulators: It’s positive for emerging markets and good for Russian stock market," Stanislav Kleshchev, an analyst at VTB 24 PJSC, said in e-mailed comments. "The correction in oil prices and the ruble created a good opportunity for those people who are betting crude will recover to $50-$60 per barrel to go long on Russian risk."
JPMorgan Chase & Co. strategist David Aserkoff recommended an overweight position in Russian stocks in a note dated July 25. The country’s equities are undervalued and offer a “rising payout ratio and the best dividend yield of any major emerging market,” he said. The Micex offers an average 4.5 percent dividend yield.
While the ruble weakened on Monday, its declines lagged a drop in crude oil, Russia’s main export earner. Brent traded 1.7 percent lower at $2.78 per barrel as U.S. producers increased drilling and crude and fuel stockpiles remained at the highest seasonal level in at least two decades.
The slower pace of the ruble’s retreat means the government collects fewer rubles per barrel of oil sold for foreign currency abroad and the price of Brent in local-currency terms fell to 2,846, the lowest on a closing basis since April 7.
The ruble owes a part of its resilience to the Bank of Russia’s decision to keep rates on hold last week, according to Alexander Losev, chief executive officer at Sputnik asset management in Moscow. That supports the appeal of ruble-denominated securities for traders who fund their investment in currencies where rates are lower.
"The ruble owes its relative stability to the conservative stance of the Bank of Russia and the cautiousness of the Fed, both of whom kept rates unchanged last week," Losev said by e-mail. "The difference in interest rates makes the ruble a very appealing asset for carry trade in spite of all the risks."