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bne October 2018 Special focus I 29
and took off in 2008. Today mortgages account for two thirds of all apartment purchases and it has only been in the last year or two that interest rates have fallen close to “normal” levels so this story is still only at its start.
The country’s titanic reserves of mineral wealth and its enormous 147mn strong consumer market, by far the largest in Europe, form the bread that surrounds
a grisly sausage meat of unreformed Soviet-era companies in what has been called the “Soviet sandwich.” The best of Russia’s modern companies are already world class and there are growth nodes in every sector, as all the factories and
services that were missing from commu- nist Russia are being created.
Although the index is flat at a company level the stocks of the best of these com- panies have been soaring. In 2016 the entire market rerated as the post-Crimea sell off was over done and investors decided that Russian stocks were simply too cheap. Russia’s RTS returned 52% that year making it the top performing equity market in the world. Since then investors would have to pick individual names to get similar returns but the best names have done even better. The X5 Retail Group saw its share price double in 2017 as caught up with and overtook
its rival Magnit to become Russia’s largest supermarket chain with more than $10bn a year in revenue. The metal producers. including the iconic Magni- togorsk Iron and Steel Works (MMK), had a similar ballistic ride as commodity prices rose in 2017, whereas the baton has passed to the oil companies this year on the back of the inexorable rise in oil prices. And the state-owned retail bank- ing behemoth Sberbank remains foreign investors outstanding favourite as it is a proxy for the whole economy.
In this special focus we survey some of the most obvious stock market stories of the last few years.
of the market thanks to the concentra- tion of investment in a few names. These problems also cut off Russia’s smaller companies from international investment capital which can tap what allocations are made by international investors to ETF holdings. Sberbank’s larger pool
of names in its ETF is designed to avoid some of these problems and give investors a broader exposure to the Russian story.
Currently Sberbank’s BPIF includes shares of 42 issuers traded on the Mos- cow Exchange and tracks gross yield of the exchange indexes (counting pre-tax dividends of the issuers). The fund will reinvest the dividends received from the shares in its portfolio. That will significantly increase the return of the BPIFs as Russia is currently paying the highest dividends in the world – twice the average return from the MSCI EM index average, the industry benchmark. The leader Surgutneftegaz is currently paying a whopping 19% dividend yield, according to analysts, and there are about two dozen stocks that pay twice the MSCI EM average.
Prior to the Sberbank BPIF only 14 Ireland-registered ETFs of companies FinEx and ITI Funds were traded on Moex, and none of those were based on Moex indexes.
Commenting on the high volatility on the Russian market currently, the head of Sber- bank Asset Management Evgency Zaytsev
Sberbank launches Russia's first ETF
Ben Aris in Berlin
The first Exchange Traded Fund (ETF) based on Russian financial law has been listed on Moscow Exchange (Moex) by Sberbank Asset Management and Sberbank CIB, Vedomosti daily reported on September 17 citing Moex representatives.
Russian law now defines the Bourse Participative Investment Fund (BPIF), which is traded similarly to usual ETFs, is highly liquid, and closely follows the dynamics of the cost of the fund's assets.
ETFs have sprung to prominence in the last decade and now make up the bulk of the equity investment into Russia’s shares. They are cheap and easy to use and as they are traded on foreign exchanges they avoid the country and currency risks some other more direct methods of investing into Russian stocks have.
The disadvantage is relatively few names are big enough or have sufficiently large free floats to be eligible for inclusion in an ETF, which also adds to the volatility
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