Russian Stocks Rise as JPMorgan Says ‘Cheap’ Valuations Lureby
Crude price has yet to filter through stocks implying $45 oil
Valuations of 6.2 times estimated earnings are half of peers
Russian stocks ended their longest slide in a month as JPMorgan Chase & Co. raised its recommendation on the nation’s equities to overweight because prices don’t reflect a recovery in oil.
The Micex Index of 50 stocks added 0.5 percent to 1,967.10 by 6:15 p.m. in Moscow, having lost 2.2 percent in the previous four sessions. Bonds also rose, pushing yields on five-year local-currency OFZs down three basis points to 8.77 percent after rising to the highest in two months Monday on concern tensions with the U.S. over Syria may lead to new sanctions. The ruble strengthened 0.3 percent to 62.9475 per dollar.
While OPEC’s decision to limit output for the first time in eight years last month turned the ruble into the world’s best-performing currency after Mexico’s peso, the benefits have yet to filter through to stocks. The Micex has fallen while oil has climbed 12 percent since the agreement on Sept. 28.
“A potentially higher oil-price range is the catalyst for upgrading Russia,” JPMorgan analyst Adrian Mowat said in an e-mailed note, raising Russian stocks to overweight from neutral. “Valuations in Russia are cheap."
Russian shares on the Micex index are trading at 6.2 times estimated 12-month earnings, the lowest level among emerging markets, and half the valuation for MSCI Inc.’s emerging-market gauge. JPMorgan said that the energy sector stocks are pricing in $45-per-barrel oil, not $50. Brent crude retreated 0.3 percent to $51.39 a barrel on Tuesday.
The dollar-denominated RTS Index is up 30 percent this year, the fourth-biggest gains among equity indexes worldwide.
Germany on Monday joined the U.S. and Britain in weighing fresh sanctions against the Syrian and Russian governments over the bombardment of Aleppo, a development that could “pose some risks to OFZs,” according to Morgan Stanley.
“We still see OFZs as an attractive carry trade in the medium term," analysts including Gordian Kemen said in an e-mailed note.