Des informations intéressantes sur la Russie et en particulier les midcaps, par la maison de gestion Middle Europe Investments...
(le fonds MEI Rusland Midcap est présent dans le portefeuille)
Despite a disappointing January, Russian blue-chips recovered strongly. The main index RTS shows for 2009 an increase of 72.1% (as at end of May 2009). The RTS-2 rose 56.5% this year. Compared to these high yields, the 8.4% yield of MEI-Rusland Midcap Fonds N.V. (RMF) over the same period may seem poor. However, this (short term) result presents a distorted picture. When comparing 1-year yields, the RTS Index performed with a loss of -56.3% almost exactly the same as RMF (-57.7%). RMF even outperforms the RTS-2, which has an 1-year performance of -66.8%.
Tabel 1: RTS indices vs MEI-Rusland Midcap Fonds N.V.
| RTS-1 | RTS-2 | RMF | |
| Performance in % | (blue-chips) | (liquid midcaps) | |
| YTD | 72,1 | 56,5 | 8,4 |
| 1-year | -56,3 | -66,8 | -57,7 |
Distressed sellers
During the sharp decline of the markets, shares suffered from distressed sellers, in particular shares with a higher degree of risk. Blue-chips showed heavy losses, with even a more severe situation within the small- and midcap segment. Investors simply dumped their stocks, as some investors took only small compensations for granted. Due to outflow of assets under management, some market players were forced to sell their shares at any given price.
Trend reversal
Investors reversed their stance at the beginning of March. The larger part of Russian stocks had reached in the meantime Price/Earnings-ratio’s of 2 and were quoted at less than half their actual book value. Large investors viewed this no longer justified and large international funds assigned Russia the status ‘Overweight’. However, liquidity and risk perception are very important issues in this case. Since liquidity is still low, market players focus on the most liquid shares: blue-chips. Risk aversion was still high. Small- and midcap shares with low liquidity and a high degree of risk were still avoided. In case of a continuation of the crisis, investors only looked for shares which could be sold immediately when necessary. Liquidity in the blue-chip segment returned during May 2009 to the level of June last year. However, trading volumes in the small- midcap segment are still considerably lower (see table 2).
Table 2: Trading volumes Russian Stock Exchange
| RTS Standard | RTS Board | |
| In USD million | (blue-chips) | (small/midcaps) |
| June 2008 | 26.734 | 46,3 |
| January 2009 | 6.716 | 4,2 |
| February 2009 | 6.486 | 1,9 |
| March 2009 | 9.162 | 3,2 |
| April 2009 | 9.756 | 7,6 |
| May 2009 | 25.120 | 7,0 |
Rank-order in recovery
Since the blue-chips experienced a significant rally, a large part of these shares are now reasonably priced. Market conditions are stabilized for this category of investments. This is the general procedure of recovery of financial markets: investors start by looking for investments that took the hardest hits, but have high liquidity and relatively limited risk. When these investments have reached a comfortable yield, investors are ready to take more risk. Furthermore, the economic decline may have reached the bottom. Smaller and medium-sized companies with a healthy balance sheet and a strong market position are returning on the screens of investors.
Rally small- and midcaps yet to start
An excellent example of this process can be seen within shares of banks. The share price of blue-chip Sberbank has recovered strongly. The smaller Bank St. Petersburg is just regaining investors confidence. Whereas the share price of Sberbank already started to increase in March 2009, Bank St. Petersburg had to wait until the start of May (see table 3).
Table 3: SberBank versus Bank St. Petersburg
| | 2008 | YTD |
| Sberbank | -82,5% | 91,2% |
| Bank St. Petersburg | -79,2% | 28,2% |
As a result, the share price of Bank St. Petersburg has yet to start a rally, one can add the excellent fundamentals that are strongly in favor of this smaller bank (see table 4).
Table 4: Fundamentals SberBank en Bank St. Petersburg
| Market cap | Price/earnings | Price/Book value | Non performance Loans | ||||||
| (USD m) | 2008 | 2009 | 2010 | 2008 | 2009 | 2010 | Current | end '09 | |
| Sberbank | 29.393 | 9,2 | 18,8 | 6,8 | 1,2 | 1,2 | 1 | 1,80% | 10,00% |
| Bank St. Petersburg | 379 | 4,3 | 6,5 | 3 | 0,6 | 0,6 | 0,5 | 0,40% | 7,50% |
Deceiving flickering
Although it’s very tempting to state that RMF is underperforming the Russian stock market, it’s too hasty to claim this. MEI-Rusland Midcap Fonds N.V. invests in small- and midcap companies which it expects to outperform the economic growth. A sector such as infrastructure is marked by companies with huge growth potential, but also low liquidity. This sector hasn’t really moved since the rally in blue-chips, while the 2008 figures are in general very convincing.
A YTD of 72.4% for the RTS Index looks fantastic, but the 1-year performance of -56.3% is very disappointing. The rally in blue-chips is, or maybe was, very strong, though valuations are now normal again. We expect that investors in Russia will start to switch to the next investment category: small- and midcaps. This will improve liquidity in the sector.
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