MOSCOW, October 21 (RIA Novosti), Stanislav Fisher — After the European Union decided to hit Russia with its so-called “third stage of sanctions”, the Western media unleashed a flurry of articles depicting the results of the sanctions as some sort of economic Armageddon. Now, at least some of the western experts are starting to challenge this unrealistic vision.
The German intelligence agency BND recently shocked the country's media with a report on the state of the Russian economy. Berlin's top spooks took the old-fashioned fact-based approach, ignoring the fashionable idea that “Russia's economy will be a mess soon” preferred by some Western propaganda outlets masquerading themselves as economic press. According to the BND calculations, Russia can weather the imposed sanctions for four years without experiencing any significant economic hardship. The reasons cited by the German intelligence agency include a high level of currency reserves and a very low level of national debt, currently below 14% of the country's GDP. For comparison’s sake, Japan’s national debt is a whopping 226.1% of GDP according to 2013 CIA estimates, and even fiscally prudent Germany’s public debt represents 79.9% of GDP. It is a pity that the BND issued the report after and not before the sanctions were imposed by the European Union. Anyway, according to the German intelligence agency, “economic Armageddon” is not coming to Moscow anytime soon.
On October 17th, just seven weeks after their call to sell Russian equities, Morgan Stanley issued a new call, upgrading the ratings of Russian equities to “overweight”, i.e. “buy”.
According to the bank's analysts, the worst is over:
“While we remain cautious on the prospects of a major breakthrough, our base case does not anticipate further escalation, even if the conflict remains at an impasse for many months. We do not have cause to believe the situation is deteriorating, and worst case outcomes (such as additional sanctions) now appear a less likely scenario”, they wrote in a research note quoted by Bloomberg.
Russian equities, especially in the energy sector, are very cheap compared to their peers, including those in other emerging markets. At an average price-to-earnings ratio of just 4.7, the Russian stock market offers bargains that are compelling by any rational measure.
While the Morgan Stanley report mentions that the top reasons for owning the stocks from the Moscow's MICEX index include their current low valuations and the high probability of a strong bounce in oil prices, one of the most popular Twitter-based financial pundits, who uses the handle “Russian_market” has a different view:
Morgan Stanley raises Russian stocks. — The miracles of snow.
— Russian Market (@russian_market) 17 октября 2014
Snow is a strong argument indeed. Who wouldn't like to own some Gazprom shares before a long and atrociously cold European winter?
