Betting on BRICS: Bloomberg Declares 'Buy Russia' as Stocks Undervalued

As the BRICS countries continue their steady rise, now bolstered by their own institutions, investors are putting their thinking caps on and deciding where to bring their money first; meanwhile Bloomberg has offered a surprising answer: it is Russia, no matter what is said aloud.

“Our models are telling us to buy Russia,” the agency quotes Tim Love, a London-based investment manager at GAM UK Ltd, which oversees $130 billion in assets, as saying. “There is a very strong turnaround potential. It’s an increasingly difficult call to get right because of politics. I’d be happy to pull the trigger in the next two to three months.”

In nominal terms, Bloomberg explains, Russia’s benchmark Micex Index has advanced 18% this year, 4 percentage points less than the Shanghai Composite Index. Still, a record drop in Russian volatility, combined with an increase in Chinese price swings, has left returns adjusted for such fluctuations superior for Moscow by a factor of 1 to China’s 0.6, according to the data. That was also the best gain in the BRICS.

Russia’s stock, however, remains undervalued compared to that of other BRICS member states. The Micex trades at 5.9 times the projected earnings of its members, compared with the second cheapest gauge, Brazil’s Ibovespa, at 12.6. China, India and South Africa enjoy multiples of above 15.

“Most Russian stocks are fundamentally undervalued,” Bloomberg quotes Mattias Westman, the London-based founder of Prosperity Capital Management, which oversees about $2 billion in assets from former Soviet republics including Russia, as saying. “There is potential for further recovery.”

Its survey shows that Russia’s economy, set to contract this year for the first time since 2009, may rebound 0.5% in 2016. European economic sanctions are also likely to be relaxed, as it won’t be “easy to convince everyone to prolong them” next year, Westman said.

Cheaper valuations remain the key argument in favor of Russia for now, but Tim Love calls the market “a spring.”

“You’ve got to continue pressing on the spring to keep the valuation low,” he explained. “It’s not where Russia should be.”