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Still Time to Buy Russian Stocks
The outflow of funds from emerging markets is continuing. The MSCI index of developing markets has lost 22 percent in the last three months, with Ukraine losing 59%, China 57%, Hungary 49%, Pakistan 47% and Vietnam 46% due to the liquidity crisis caused by the mortgage meltdown in the United States, slowing global economic growth, a deteriorating banking system and commodities markets, and geopolitics. In that light, the Russian stock market’s 43-percent loss since the beginning of the year looks not bad at all, and the situation is sure to improve.
Evidence that the Russian market has attracted the notice of foreign investors was seen yesterday when VimpelCom ADRs rose 7.6% and Mechel ADRs rose 9.5% in weak trading in the U.S. Meanwhile, statements by Russian President Dmitry Medvedev and a number of ministers indicate that the Russian government intends to place its financial resources not only in the banking sector, but in the Russian market as a whole. Nonetheless, that will be a slow process, since a number of new laws must be passed to accommodate the process.
Thus in spite of continuing negative trends, with falling oil and metals prices and Asian stock markets continuing to fall, the Russian market is clearly oversold and ripe for a turnaround. Sovlink lead analyst Nikolay Osadchy recommended electric company stock. That stock, along with banks, was a loss leader for the last two days. American electric companies made their recovery yesterday, rising 3.6%, compared to general upward movement of 0.34% on the Dow Jones index.
www.kommersant.com
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