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.

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