Damaged by the Georgia conflict, Russia's stockmarket has lost almost a third of its value in the last two months, according to Michael Konstantinov, manager of the Allianz RCM Bric Stars fund.
He believes Russia’s economy is close to ‘tipping point’, as the present market is almost 35% under its peak and is trading close to seven times current earnings.
“The Georgia situation was preceded by Putin’s attacks on Mechel, the mining firm, at the end of last month as well as the recent weakness in oil prices… Hence, the Russian market trades at huge discounts in an international comparison and is discounting a lot of negative newsflow,” said Konstantinov.
Elena Shaftan, head of the Emerging European team at Jupiter, says at the peak of the South Ossetia conflict, the Russian stockmarket dropped 10% in two days. This was after it had already suffered a 20% fall since the highs of 19 May.
Konstantinov and Shaftan have both reduced exposure to Russia in recent weeks “quite aggressively”.
However, managers are identifying attractive stocks and sectors in Russia in the current climate. Shaftan believes some stocks are at distressed levels and represent a buying opportunity.
“Opportunities are being found not only in commodity companies but also in consumer products,” said Dr Mark Mobius, fund manager of the Templeton Emerging Markets investment trust.
Managers are also positive on the long-term outlook for Russian investing, despite the recent bad headlines.
Shaftan said conflict in Ossetia “has no significant impact on Russia’s economic fundamentals and corporate earnings, and at the end of the day we firmly believe this is what ultimately drives the markets.” She reminded investors the Russian market has returned over 1,700% in a 10-year period.
Mobius added: “More important will be the direction of oil, commodity and gas prices since the Russian economy and market is very dependent on those products.”
Konstantinov’s outlook is also upbeat for the region, as he said there has been no slowdown in the inflow of foreign direct investment. “Once the oil price stabilises and political uncertainties recede, we will be able to return to our strong weighting for the country and may even increase some of our positions to a higher level than previously held,” he added.
A version of this article first appeared on www.ifaonline.co.uk.
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