Russian stocks suffer as the world fears it will invade Ukraine

“The Russian economy is at its strongest in years,” says Anna Hirtenstein in The Wall Street Journal. A “gusher of gas and oil revenues” has helped make the rouble one of the few emerging market currencies to hold its own against the dollar over the past year. Russia only needs oil prices of $40 a barrel to break even; this week Brent crude was trading at $83 a barrel. Soaring European gas prices help fill the coffers. Yet while Western oil majors rally, shares in state-controlled Gazprom are being left behind. “Geopolitics, not economics, are driving Russian markets.” 

Certainly, intrepid bargain-hunters will find much to like in Russia, says Danil Kolyako on Seeking Alpha. The oil market looks likely to remain tight in 2022 and Russian stocks boast some of the most eye-catching dividend yields in the world. “The majority of Russian dividend-paying stocks are going to deliver dividend yields ranging mainly from 9% to 15% in 2021 and 2022.” That partly reflects strong commodity prices, but also the fact that with local interest rates at 8.5% – the result of “hardcore monetary policy” – dividends need to keep up. 

Russian markets look “extraordinarily cheap”, agrees Paul McNamara of asset manager GAM. “Ukraine is the issue.” Despite being “the toast of emerging markets” for much of 2021, stocks have fallen 11% since October as Russian troops mass on its neighbour’s border and investors become wary, say Alexander Sazonov and Anna Andrianova on Bloomberg. If Russia were to invade Ukraine, the resulting sanctions would make it “impossible to know what you can and can’t do”, rendering the country “uninvestable”, says Elena Loven of Swedbank Robur Fonder, a Swedish asset manager that currently has investments in Russia. “If it invades Ukraine, Russia would disappear as an asset class.”