Russia’s stockmarket is cheap for a very good reason

On a cyclically adjusted price/earnings ratio of just 7.3, Russia's stockmarket is in an entirely different value category to the rest of the world. And there are good reasons for that.

Is it time to buy commodity exporters? Goldman Sachs thinks that the Russian and South African equity indices could be poised to outperform their emerging-market peers, says Sydney Maki on Bloomberg. 

Both markets are skewed towards miners and other raw materials firms, which should gain from strong global commodity prices. The bank also notes that rising real yields in the US are reducing the relative appeal of alternatives such as Chinese growth stocks. 

Mebane Faber of Cambria Investment Management says South African stocks began 2021 on a cyclically adjusted price/earnings (Cape) ratio of 16.5. That is a reasonable price, but still more expensive than the FTSE (on a Cape of 14). Russia, on a Cape of just 7.3, is in a different value category entirely. There are good reasons for the steep Russian discount, says Henry Foy in the Financial Times. Weak property rights and rule of law mean an investment in the country is never truly safe. Corporate transparency is another problem. Take Siberian energy business Surgutneftegas, which has scarcely any debt and a $50bn cash pile but is valued at just $20.5bn. Investors have given up trying to guess what the cash is for and don’t expect any answers: “There is no public information” on major shareholders and the reclusive boss has been there since the days of the Soviet Union. 

 Russian firms are increasingly tapping Western markets directly to cash in on the global equity boom, says Alexander Marrow on Reuters. Discount chain Fix Price raised $2bn when it floated in London and Moscow last month. Gold miner GV Gold plans to do a similar joint listing later this year. “This year could be [the] best for equity raisings from Russia since 2007”, Fedor Tregubenko of UBS Group told Reuters’ Katya Golubkova.

Recommended

Early repayment charges: should you abandon your fixed-rate mortgage for a new deal now?
Mortgages

Early repayment charges: should you abandon your fixed-rate mortgage for a new deal now?

Increasing numbers of homeowners are paying an early repayment charge to leave their fixed-rate mortgage deal early, and lock in a new deal now. Shoul…
30 Sep 2022
Energy meter reading day: why you need submit your gas and electricity readings now
Personal finance

Energy meter reading day: why you need submit your gas and electricity readings now

Energy meter reading day - you need to submit your gas and electricity readings as soon as possible ahead of the October energy price increase
30 Sep 2022
Should you fix your mortgage? Here are the best rates available now
Mortgages

Should you fix your mortgage? Here are the best rates available now

Rising interest rates look set to spring a nasty surprise on millions of homeowners next year. You need to take steps today to protect yourself from a…
30 Sep 2022
Why the Bank of England intervened in the bond market
Government bonds

Why the Bank of England intervened in the bond market

A sudden crisis for pension funds exposed to rapidly rising bond yields meant the Bank of England had to act. Cris Sholto Heaton looks at the lessons …
30 Sep 2022

Most Popular

Why everyone is over-reacting to the mini-Budget
Budget

Why everyone is over-reacting to the mini-Budget

Most analyses of the chancellor’s mini-Budget speech have failed to grasp its purpose and significance, says Max King
29 Sep 2022
How the end of cheap money could spark a house price crash
House prices

How the end of cheap money could spark a house price crash

Rock bottom interest rates drove property prices to unaffordable levels. But with rates set to climb and cheap money off the table, we could see house…
28 Sep 2022
Why UK firms should start buying French companies
UK stockmarkets

Why UK firms should start buying French companies

The French are on a buying spree, snapping up British companies. We should turn the tables, says Matthew Lynn, and start buying French companies. Here…
28 Sep 2022