Russian stocks have slid recently, but the outlook remains favourable. The economy has stabilised and is slowly emerging from recession, helped by the gradual rebound in the price of oil, Russia’s key export.
There is ample scope for the central bank to stimulate the economy. Inflation is under control – it has fallen below 6% – but interest rates are still at 10%. The political backdrop is stable, albeit authoritarian, and America’s President Trump could loosen sanctions against Moscow.
The market is also still cheap on a cyclically adjusted price-earnings ratio of six.
“Sentiment remains frothy… The [latest US] Investors Intelligence poll of advisers found 61.2% bullish, a shade lower than the 62.7% reading a couple of weeks earlier, which was the highest since December 2004… [Yet] amid the equity market’s seeming complacency, the action in global bond markets suggests something else. The ten-year US Treasury yield ended [last] week at 2.317%, the lowest since late November, despite the reflation trade in stocks… Even more startling was the slide in the German two-year yield, to minus 0.95%… amid growing concern about France’s coming presidential election. While stock investors are smiling at daily Dow records, the bond crowd seems to be hunkering down.
Randall W. Forsyth, Barron’s