Morgan Stanley optimistic about Russian equities

MOSCOW. March 26 (Interfax) – Russia’s stock market has very strong potential for growth, Morgan Stanley analysts believe.

Russian equities are currently the lowest priced among emerging markets and there are a number of reasons to expect that the discount at which they are traded will decrease, the investment bank’s analysts said in a report. Even the Russian oil and gas sector is currently trading at a very steep discount to similar stocks, so with positive signs growth is also likely in this sector, they reckon.

However, they said that the Russian equities market could come under short-term pressure due to the problems in Cyprus. But good macroeconomic news at the global level will probably support Russian stocks in the medium and long term.

The macroeconomic situation in Russia is currently fairly stable and less vulnerable to external negative developments, the investment bank said. Reforms in Russia are progressing, though slowly, and this is reason to expect an improvement in the country’s investment climate. In any case, current valuations for Russian equities overcompensate for corporate governance and political risks, the bank’s analysts reckon.

They also expect global economic growth to accelerate starting in the second half of 2013 and this will have a positive impact on Russian corporate profits, which have bottomed out. Furthermore, the dividend policy of Russian companies is becoming more and more attractive.

In addition, the situation with domestic growth, inflation and interest rates in Russia is becoming ever more favorable, which along with all the other mentioned factors increases the appeal of Russian equities, the analysts believe.