Date
26 March 2017
Russia's  domestic food industry is one of the beneficiaries of Western sanctions and Moscow's retaliatory ban on Western imports. Photo: Bloomberg
Russia's domestic food industry is one of the beneficiaries of Western sanctions and Moscow's retaliatory ban on Western imports. Photo: Bloomberg

What we can learn from Russian stocks’ rally against all odds

The resilience of Russian stocks is a good example of how a seemingly full-blown crisis eventually turns out to be not so terrible after all.

The Russian economy did take a beating from the sanctions imposed on it by the West in 2014, which sapped foreign direct investments and choked off Russian firms’ access to overseas funding.

But as the saying goes, every cloud has a silver lining.

After reaching its record high in April, Russia stocks have pulled back moderately, but the benchmark Micex Index is still about 10 percent above its level at the beginning of the year.

One unlikely reason for the bounce back of Russian companies is the sanction itself. With foreign goods less available, Russians had to use homegrown products and services.

Russia’s retaliatory ban on imports of many Western products also provided extra incentive for local makers to ramp up production.

The tourism sector also benefited, according to reports, thanks to a weaker ruble. Visitors from mainland China are said to be growing by leaps and bounds, and this is a key factor behind Russia’s 20 percent jump in tourists last year.

Numerous fund managers consider Russian stocks among the cheapest worldwide. The average price earnings ratio of Micex constituents is about seven times projected 12-month earnings.

Any move by the United States or the European Union to ease or lift sanctions would unleash a rally that will transform Russia’s stocks into “the bargain of the century”, Bloomberg quoted Mark Mobius, executive chairman of Templeton Emerging Markets Group, as saying.

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CG

EJ Insight writer

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