Most of the state controlled companies of Russia have refused the appeal of Vladimir Putin, the President of Russia to increase dividends. This has given investors a new reason for avoiding the cheapest emerging market stocks. In last month, the stock discounts of Russia to the MSCI Emerging Markets gauge increased to 2.1 times of net assets, this is the highest in the last 4 years. 11 of the 17 state controlled companies in the benchmark stock gauge of Russia, Micex Index ignored November rule of the Russian Government to mandate a payout equal to at least 25% of net income. The Micex Index is down by 9% in 2013, marking the 2nd worst performance among all the BRIC markets, just after Brazil. When it comes to the state controlled companies of Russia, both OAO Inter RAO UES and OAO Rosneft experienced a decline of 20%.
The Head of Asset Management department of Alfa Capital, Victor Bark, stated that the unrealized dividend promises have an adverse impact on the Russian market, particularly as this used to be one of the key triggers of growth. Bark added that this is a bad news in the current scenario as there are no sources to prove that the economy is growing.
As far as the reports of the Economy Ministry are concerned, the capital inflows, in month of April, amounted to as much as $4 billion. Putin has targeted the dividends in an attempt boost the budget revenue and lure the domestic and foreign investors who are otherwise worried of the economy which grew at the slowest pace in the 1st quarter of 2013, since 2009.
The payout push of the Russian Government has not been that effective till this time as some of the biggest companies are resisting the attempt to trim down their cash piles as the profits tumbled on last year, as mentioned by the Fund Manager of Pacific Investment Management Co., Masha Gordon.
Stocks listed in the Micex Index are currently trading at 5 times of the estimated earnings and this marks the least value for the 21 prominent emerging markets. The Micex Index is currently at 1,345.37, after declining by 0.4%. On 23rd May, the Deputy Prime Minister of Russia, Igor Shuvalov stated that the Government will propose making usage of International Standards mandatory from 2014.