European investors upbeat on Russia
The majority of European investors believe Russian equities will outperform global markets, according to a survey by the Royal Bank of Scotland, although far fewer investors believe the country's stocks remain undervalued since a more-than doubling in the markets this year.
A recent survey of 30 European institutional investors by RBS revealed that 57% expect the Russian market to outperform global markets over the next 12 months.
However, the survey found that only 39% said that Russian equities are undervalued. This compares with 84% who thought this was the case in a similar RBS survey last September.
The survey follows a spectacular rally in Russian equities this year, which led the dollar-denominated Russian Trading System to recover by 120% from its low of 498 on January 23. It stood at 1097 at 09.30 GMT today.
The ruble-denominated Micex stock exchange has gained 115% from a low of 513 on October 27 last year and was trading at 1105 at 09.30 GMT today.
Only 42% of the institutions surveyed, which included long-only investors and hedge funds, had made the most of this rally by increasing their exposure to Russian equities. Around one in seven (14%) investors said they had increased their holdings by more than 30% since the end of September last year.
Meanwhile, a third (32%) said their holdings had declined compared with September 30 last year and 21% said they had reduced their exposure to Russian equities by more than 30%.
But Russian equity strategist Chris Weafer from Uralsib said in a note that Russian funds received their biggest weekly inflow of money for over a year in the week to June 4. The total received by Russia funds was $182m (€132m), although this lags investments in other major emerging markets such as Brazil, where there was a inflow of $832m in the same period.
The RBS survey revealed that investors are confident in the Russian government's action to counter the financial crisis with 93% stating that the measures taken since last September have been adequate. However, half (52%) of investors also believed that the country's gross domestic product will contract by more than 3% this year.
The greatest investment risks identified by foreign investors were: corporate governance, political influence and the price of oil, while less than 25% of investors surveyed said that levels of corporate indebtedness was a major risk despite the ongoing constraints on credit in Russia.
Oil and gas was the most attractive sector with telecoms and media in second position, while real estate remained the least favoured sector.
-- Write to Dawn Cowie at dcowie@efinancialnews.com
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