• Outlook for equities generally positive, PE at 6x, dividend yield of 6%
  • Erste AM investment expert Peter Szopo: Putin cabinet “4.0” shows only restrained willingness to reform
  • Sanctions are burdening investor confidence in companies
Peter Szopo

Peter Szopo

At the kick-off for the World Cup finals on 14 June, Russia will move to the public limelight for four weeks. According to Erste Asset Management (Erste AM), there are numerous reasons for a closer look at Russia, its economy and its equity market beyond the current events in sports: the rise in US interest rates, the recent strength of the US dollar, the recovery of the oil price, the renewed tightening of sanctions, and the re-election of President Putin have shifted the economic environment and the framework for investors.

According to equity strategist Peter Szopo, the Russian economy has moved past the recession of 2015/2016, which had been largely triggered by the slump in oil prices and in domestic purchase power. This year and in 2019, the economy should grow by about 1.8% according to current forecasts. Whereas a number of emerging economies have been negatively affected by the rise in US interest rates and the appreciation of the US dollar, Russia is in better shape to be facing this scenario, as the Erste AM expert explains. The country has generated a current account surplus and a practically balanced budget. Total debt has generally fallen over the past years, with government debt amounting to only 17.5% of GDP.

“However, the solid macroeconomic figures should not gloss over the fact that the long-term growth momentum of the Russian economy is subdued,” says Szopo. The predicted growth figures are only half the size of global economic growth. This would mean significantly lower growth rates than in the years prior to the financial crisis, when the country was in the fast lane. Whether this will change during “Putin 4.0” remains to be seen. “The new government and the reform goals decreed by the president are signalling limited willingness to reform”, as the expert explains.

Effects of sanctions partially absorbed by oil price fluctuations

Alexandre Dimitrov

Alexandre Dimitrov

There are no signs of loosening sanctions by the West. In fact, the opposite is the case: the USA has imposed new sanctions, which among other things have led to another bout of depreciation of the Russian currency. So far, the negative effects of the sanctions have been partially absorbed by the fluctuations of the price of oil and other commodities, but in the long run the bottom line of the consequences will be strictly negative for the Russian economic outlook. From an investor’s perspective, the last round of US sanctions is particularly negative given that for the first time listed companies and their international operations have been affected by politics.

This situation notwithstanding, the outlook of Erste AM for the Russian equity market is generally positive. “At a PE of about 6x on the basis of expected earnings, the market commands an attractive valuation’, says Alexandre Dimitrov, manager of the Russian equity fund ESPA STOCK RUSSIA (assets under management: EUR 32mn). The valuation discount relative to other emerging markets is clearly above 40%. Also, the Russian equity market offers a dividend yield of more than 6%, which is bolstered by both earnings forecasts and foreseeable dividend policy.

At the moment, Dimitrov prefers export-oriented companies with healthy balance sheets that can boost their profits also in a difficult environment. These are mainly listed companies in the energy and commodity sector that benefit from the low rouble and offer investors a high dividend yield.


Peter Szopo, equity strategist Erste Asset Management, and Alexandre Dimitrov, manager of the ESPA STOCK RUSSIA equity fund, see a positive outlook for the Russian stock market in the context of the Football World Cup.


Photographer: Martin Hörmandinger, publication free of charge, rights at Erste AM

Alexandre Dimitrov, Senior Fund Manager ESPA STOCK RUSSIA

Peter Szopo, Equity Strategist

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