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22 I Companies & Markets bne November 2017
Now the tide seems to be turning again for Russia’s equity markets; in 2016 with the end of the recession in sight and geopolitical tensions easing, investors decided Russian stocks were too cheap to ignore any more. The leading RTS index gained just over 50% in a year.
Russia has overtaken India as the largest overweight position for emerging market equity funds in September, ending a long run for India as the investor’s darling since reformer Prime Minister Narendra Modi took the leadership.
The average EM equity fund is now overweight Russia by 1.46pp, surpassing the 1.4pp figure for India, where fund managers had an average overweight position of 4.4% in early 2015, according to Copley Fund Research that complies data on emerging markets (EM) based on the holdings of 126 funds with combined assets of $300bn. Of these funds some three quarters (72.8%) are now overweight Russian equity. Russia has become easier to invest into for fund managers after its share in the MSCI Emerging Market index has fallen to 3.3%, half its weight in early 2012.
The most popular stocks with these fund managers are Sber- bank in the first place, followed by the new retail king, the
X5 group that over took former investor’s darling Magnit to become Russia’s biggest supermarket chain by turnover. Other stocks that are included in this “tourist basket” are search
engine Yandex that remains the largest tech stock in Europe by capitalisation, and Lukoil, Russia’s leading privately owned oil company.
However, despite the enthusiasm so far this year the markets have not performed well. The ruble denominated Moscow Interbank Currency Exchange (MICEX) is down 7% YTD and its sister dollar denominated Russia Trading System (RTS) is
“Russia has overtaken India as the largest overweight position for emerging market equity funds in September”
down 2%. But that actually represents gains on a double-digit fall in the first quarter and Russia’s equity markets have been recovering since the beneficial effects of the “Trump bump” wore off in the spring.
In the first half of 2017, Emerging Markets Funds Templeton Developing Markets Trust and Templeton Emerging Markets Fund, part of Mobius’ group, acquired US depositary receipts
Net EM Capital Flows (USD billion)
Brazil
Chile
China
India
Indone- sia
Mexico
Poland
Russia
S.Africa
Turkey
2017Q1
2017Q2
Jun-17
Jul-17
Aug.2017
Ytd(2017)
Memo:
Ytd(2016)
2016
IIF 2017 forecast
7.9 -1
0.1 1
-0.8 1.2
5 0.8
0.8 0.3
13.8 1.1
21 3
32.5 5.4
26.4 7.2
-20.9
-19.3
9
-22.2
-11.5
-73.9
-386.8
-639.7
10.7
25.7
8.6
5
4.8
46.2
15.6
29.5
6.9 9.1
5.7 -3
-0.7 -1.5
6.8 -1.2
2.5 0.7
21.8 5.6
19.4 21.1
28.8 23.4
-5.7 -12 1.4 4
-3.1 -6 1.5 14.5
1.4 0.6 0.2 6.8
-3.5 -3.5 -0.8 2.7
0.1 -2.7 0.2 4
-12.2 -24.2 2.3 25.1
11.6 -3 6.5 33.3
18.8 -16.6 12.4 33.4
-81.5
70.2
29.1 12.3
-5.4 14.2 8.3 36.6
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