Page 35 - bne_Magazine_September_2018

bne September 2018 Special focus I 35
Russian stocks are cheapest in emerging markets
Despite the geopolitical brouhaha investors decided the sell off had been overdone and Russian shares were simply too cheap to ignore leading to
a significant rally. Last year was not as good. After a steep sell off in the first quarter the market spent the rest of the year trying to make back the loses from the first three months and ended the year more or less flat.
This year is also not going well
either. Russia saw net outflows for
15 consecutive weeks as of the start
of August, when non-residents sold another $10mn worth of Russian stocks, after selling $110mn the week before, finanz.ru reports.
Funds focusing exclusively on Russia
sold $40mn worth of securities in the
last week of August and $130mn in the last two, according to BCS GM. Funds invested into vehicles like ETFs, which include Russian stocks in a basket, added $30mn in the same week, but not enough to bring the total inflows into the black. In total, foreigners sold Russian shares for 15 weeks in a row with the exception of one week at the start of July, according to BCS GM’s Smolyaninov.
Russia’s outflows have been part of a general sell off of EM assets. “As trade tensions mounted over the course of the month, we estimate that emerging markets saw net non-resident portfolio outflows of $8.0bn in June, split about evenly between debt (-$4.2bn) and
Ben Aris in Berlin
Equity investors have been leaving emerging markets (EM) in droves in the first quarter as the US Fed tightening cycle pulls them back to
the developed world’s bourses and the unstable politics of a looming trans- Atlantic trade war drives them out of emerging ones. And that outflow got a further impetus in August as Turkey’s currency went into meltdown.
“Investor dislike for EM equities hit a new multi-year low this week,” Vyacheslav Smolyaninov, the chief strategist at
BCS Global Markets said in a note. “The sell-off may be overdone, if the world economy emerges from the trade wars unscathed, which is our base case.”
EM had their worst week in July since Trump was elected US President when outflows from all EM equity funds reached $5.2bn. Active funds were largely unaffected as the bulk of these outflows ($4.1bn) left ETFs, but that makes Russian equities vulnerable as the lion’s share of portfolio into Russian stocks are now via ETFs.
However, the pain of the global EM equi- ty rout has been Russia’s gain. Russia
attracted not only football fans in June but fund managers as Russian stocks have become the cheapest amongst the leading emerging markets after the April 6 round of sanctions imposed by the US on a number of Russian businessmen and their companies.
Russia has already benefited from this bottom fishing investment in 2016 when the index returned 52% on the year mak- ing it the best performing in the world.
RTS vs Brent Oil Price, difference x20 price of oil indicator
www.bne.eu