HomeResearch and NewsArbat Capital Chases Global Stocks, Russia Index no Bargain
Comment

Arbat Capital Chases Global Stocks, Russia Index no Bargain

The low valuation of Russia’s biggest equities index is illusory and global stocks offer a better investment, said Alexei Golubovich, the managing director of Arbat Capital, which has $500 million under management. “Our main call for the next six months is global equities outside of Russia,” Golubovich said in an interview in Moscow. Natural resources companies, semiconductor producers and certain U.S retailers, including JC Penney Co. (JCP) and Best Buy Co. (BBY), are his favorite picks. 

The low price to estimated earnings ratio of Russia’s Micex Index is skewed by the weighting of big stocks with low valuations, such as OAO Gazprom, the natural-gas export monopoly, and OAO Lukoil (LKOH), the country’s second-biggest oil producer, Golubovich said. Russia’s benchmark Micex Index (INDEXCF) trades at about 5.8 times estimated earnings, while the MSCI Emerging Markets Index (MXEF) has a multiple of 10.7.

Moscow-based Arbat invests about 20 percent of its funds in Russian equities and bonds. While Gazprom trades at three times estimated earnings and Lukoil at 4.7 times, Rosneft, Russia’s biggest oil producer, and Sberbank, the country’s largest lender, have multiples of 7.7 and 6.5, respectively, data compiled by Bloomberg show. “Sberbank at $14 and Rosneft at $9 are expensive stocks for us,” said Golubovich, referring to prices of the companies’ depositary receipts. Sberbank traded down 0.3 percent at 106.68 rubles as of 2:32 p.m. in Moscow, 5.59 rubles short of a record high. Rosneft trades at $9.05 per global depositary receipt, $1.50 above its 2006 initial public offering price. 

Special Situations

Golubovich buys only Russian stocks with high dividend yields or “special situations” equities, such as the Moscow- traded shares of OAO Mobile TeleSystems (MBT) and OAO TNK-BP Holding (TNBP)’s ordinary stock, he said. MTS has an estimated dividend yield of 5.4 percent this year, compared with 3.8 percent projected for the Micex Index, data compiled by Bloomberg show. At the same time, Golubovich said he’s positioning for changes that may allow Russia-traded shares to be freely converted into depositary receipts. He’s bought the Moscow shares of retailer OAO Magnit, while betting the price of their London-traded stock will fall, a so-called short trade, he said. Magnit’s shares in Moscow closed yesterday at 5,644 rubles ($187.33). Its depositary receipts in London, representing 0.2 of a share, cost $45.46, giving a discount of about 20 percent for the Moscow-traded stock. 

Narrow Spread 

Golubovich, who worked as director for strategic planning at Yukos Oil Co. in 1998 to 2000, said the end of a rally in the country’s Eurobonds has also driven him to non-Russian assets. “The spread of Russian Eurobonds to U.S. Treasuries is very narrow,” said Golubovich. “We don’t expect the Treasuries to rally either.” The yield premium of Russian government dollar Eurobonds due in 2022 compared with U.S. Treasuries of similar maturity fell to 92 basis points yesterday from 148 basis points on Nov. 16. Benchmark U.S. 10-year Treasury rates advanced yesterday to 2 percent for the first time since April as Federal Reserve policy makers begin a two-day meeting today. 

equity

Read more

Oil Market Report - March 2020

Crude oil prices ended February 2020 sharply lower with both ICE Brent and NYMEXWTI showing monthly declines of more than 12% to reach their lowest monthlyvalues in almost 2.5 years as the rapid spread of Covid-19 in China and several othercountries raised investors’ concerns about the impacts on the global economy and oildemand, and triggered a sharp sell-off in markets amid uncertainties on the extent ofdemand destruction and worries that this health crisis might evolve into a pandemic.

oil, investment, equity

Arbat Capital: Banking Sector Report - February 2020

US banks tumbled again in February after very weak performance in January amid spreading COVID-19 around the world. The broad market was underperformed substantially for the second consecutive month after 4 months in a row of leading dynamics. Thus, BKX index decreased by 12.5% MoM in February vs -8.4% MoM of SPX index. Absolute performance on MoM basis was -2 std from the mean and it is in the bottom 4% of absolute MoM performance of BKX index.

investment, banks;

Commodity market Report - February 2020

Trade war is officially over but Chinese risks resurfaced from the other side - extreme quarantine measures after coronavirus outbreak in Jan-Feb resulted in significant breakdown in the industrial production chains and construction activity. However monetary and fiscal stimuli quickly reversed negative sentiment and overall risk conditions returned to the high Greed mode with only commodities market kept in risk-off mode. Energy complex was very volatile as its initial sharp drop was lately compensated by OPEC verbal interventions and renewed risk in Libya and Venezuela. Industrial metals fell sharply, but Precious shined brightly with unbelievable bubble in Palladium. Agri commodities were mostly range bound with Cocoa being top performer

Macroeconomic drivers turn to negative as positive developments after the Trade Deal signature and record financial markets levels gave the way to fears of world economic slowdown after the virus outbreak. On the other hand there were not many voices for recession as stimulative monetary policy should provide the cushion. However we think that markets overstated willingness of the Fed to keep on printing and the main risk once again turned to the hawkish surprise when it exits REPO stimulus gambit and the ECB to end QE. 

commodity;