Page 61 - IFR Opportunities in Russian capital markets

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ifrintelligence reports/Opportunities in: Russian Capital Markets
Table 3.17: Weekly inflows to Russia, GEM and BRIC funds, 2006 – Feb 2007 (US$m)
January
February
March
April
May
June –716
Russia & CIS
China* India Brazil
786 299 278 1,442 577 573 1,207 701 283 1,569 519 81
539 –544 284 –600 –505 –915 4,758 1,252 1,221 299 220 194 295 168 –25 670 48 10 1,743 123 27 2,806 –150 41 15,514 2,708 2,052 1,642 57 35 –675 40 96
Russia % of BRIC**
19.10 15.20 11.40
6.00 –25.70 26.20 10.30 21.30 –19.70 13.10 1.50 3.90 7.40 1.30 –
GEM BRIC
2,502 360 1,793 1,296 304 1,468 343 857 384 –7 –2,219 82 2,055 3,615 100 32 –956 –106 704 –19 377 –58 –149 569 4,470 7,925 822 195 31 124
321 464 281 138 –57
July
August September October November December
2006 - year January ‘07 February ‘07***
826 193 –72 110
29 110 1,629 22 55
Note: *China includes both China and Greater China funds]
** Russia as a % of Russia, China, India and Brazil country specific funds *** Month to February 21st
Source: Emerging portfolio fund research
Stock valuations and P/E ratios
The market capitalisation of Russia's stock market has trebled since the start of Putin's second term of office in 2004 and some stocks such as Gazprom and Sberbank have seen their share price increase about 1,000-fold over this period. So are Russia's shares now at fair prices, or even over-valued?
Looking at the price of equity to earnings (P/E) ratios for different sectors suggests that on average Russian stocks are still trading at about a 20% discount to most of their emerging market peers, but that the years of 100% returns are over.
Peter Westin, chief economist with MDM Bank, says: "The aggregate P/E for the Russian market remains in the middle of the consensus range for emerging market peers. Similarly, on a growth- adjusted basis, Russian valuations are close to peers' valuation trends."
However, the higher P/E ratios are not uniform and the fads for oil stocks that gave away to a fashion for telecoms and retail-orientated stocks are clear from the detailed lists (in Figure 3.6 and Table 3.18). Again the bottom line is that there is still a lot of untapped value in the market, but investors can no longer sit on their hands and wait for Russian shares to ‘catch up’ with their emerging market peers; now it is necessary to go and look for undervalued companies.
Figure 3.6: P/E ratios by sector, 2007E
Developed markets Emerging markets
Banks-Russia Retailers-Russia
Fixed-line telcos Russia Mobiles-Russia
15.0 13.1
13.4 14.1
17.2
17.3
20.0
13.9 14.0
13.5
15.5 14.8 16.0
10.1
11.9
Miners-Russia 9.8 9.9
Steels-Russia 8.3 9.6 10.0
Oil & gas-Russia 9.3
Source: MDM estimates, Datastream
6 8 10 12 14 16 18 20 22
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