Russia’s benchmark MICEX index has been one of the worst performing investments so far this year. In the first quarter alone, the index lost more than 9 percent, while the most impressive monthly drop was recorded in July, just as the U.S. and the European Union escalated sanctions against Russia. All in all, it has fallen 6.6 percent so far this year.
The ruble-denominated MICEX is cap-weighted composite index calculated based on prices of the 50 most liquid Russian stocks of the largest Russian issuers presented on the Moscow Exchange. With many of them being targets of the latest economic sanctions, the investors’ reaction is more than clear. Gennadiy Babenko, equity research analyst at Renaissance Capital in Moscow, points out that the political issue is very important for any investor.
“We saw the stories with Novatek, with Rosneft, with VTB, with Sberbank, when there were talks over exclusion from the index. Basically, some investors might be concerned, others are just frustrated with the fact that they have to be monitoring the situation every day, so they just stop investing in Russia,” Gennadiy Babenko said.
The main Russian index has seen lots of ups and downs since it was founded around two decades ago. In 2008, as the collapse of Lehman Brothers Holdings triggered a global recession, it lost 67 percent, which was the biggest decline among benchmarks in the 30 largest stock markets. It rebounded, though, by 120 percent in 2009.
Peter Kinsella, a Senior Foreign Exchange Strategist in the FX Research department of Commerzbank in London, says though MICEX index has been excessively cheap in recent years, the trend is not likely to last forever.
“If you look at the stocks trading on the MICEX they’ve traditionally traded in the last two years with quite low price earnings ratios, which implies that they have the potential to be very good investments over the medium to longer term because the price is quite low for them at the moment,” Peter Kinsella said.
However, over the last week, MICEX declined 1.4% on the back of an escalation of the Ukrainian conflict, which obviously means that until the political issues are not resolved the financials instruments will hardly be working well enough.
