Arbat Managing Director Believes that Micex is No Bargain

The biggest index of Russia, Micex has been valued to be low as it is skewed by the weighing of big stocks with low valuations including the 2nd biggest oil producer of Russia, OAO Lukoil and the natural gas expert monopoly OAO Gazprom. At least, that’s what the Arbat Capital’s Managing Director Alexei Golubovich thinks. Incidentally, Alexei stated that as the Russian stocks are currently no bargain, for the next 6 months, the focus should be more on the global equities which are outside of Russia. Alexei even mentioned some of his personal favorites to invest on money are JC Penney Co., semiconductor producers, Natural Resources companies, Best Buy Inc. etc.

Incidentally, Micex index trades at 5.8 times of its estimated earnings. On the other hand, the MSCI Emerging Markets Index trades at 10.7 times of its estimated earnings. Arbat Capital invests 20% of its total funds in different Russian equities and bonds. According to recent statistics published, the biggest oil producer of Russia, Rosneft trades at 7.7 times of its estimated earnings. This multiple is 6.5 for the biggest lender of the country Sberbank. For Gazprom, the multiple is 4.7 times.

Alexei stated that Sberbank at $14 per share and Rosneft with $9 for each share are kind of expensive and he referred to the depositary receipts of these company’s while airing his comments. The Sberbank stocks experienced a decline of 0.3% today and each share is priced at 106.68 Rubles currently. This is 5.59 Rubles less than a record high figure for Sberbank. On the other hand, Rosneft is currently trading at $9.05 per global depository receipt which is $1.50 above the initial public offering of the company in 2006.

Alexei advised the investors to go only for those Russian stocks which have high dividend yields or which are the special situation equities such as OAO Mobile TeleSystems or OAO TNK BP Holding. Incidentally, for 2013, OAO Mobile TeleSystems is expected to have a dividend yield of 5.4%, higher than that of projected for the Micex Index (3.8%).

Alexei believes that the rally in Russia’s Eurobonds has ended and that’s why he is more leaning towards the non-Russian assets now. He clearly stated that the spread of Russian Eurobonds to the US Treasuries is very little at this moment and the Treasuries cannot be expected to rally either.