GAZPROM & Co: This is how investors could benefit from investing in Russia

• Russia worth a look in 2022
• De-escalation of Russia-Ukraine conflict could mean upside potential
• Two ETFs offer suitable investment opportunities

Experts see potential in Russia

Russia is best known for investments in oil and natural gas. Demand for these commodities is increasing as the global economy slowly but surely recovers from the coronavirus pandemic. A look at Russia could therefore be valuable for risk-averse investors, even despite the smoldering conflict over Ukraine, as MarketWatch reports. In particular, a recovery in this geopolitical conflict would also bring about a recovery in Russian assets, it said.

This is also the opinion of the analysts at Pictet Wealth Management, led by Julian Holtz, according to a recent report. In particular, two exchange-traded funds that reflect the Russian stock market are in focus. “We could for the MSCI Russia [Index] see significant upside potential over the next few months should a de-escalation scenario materialize (~35% in USD),” MarketWatch quoted Holtz as saying.

iShares MSCI Russia ETF

The analysts name the iShares MSCI Russia ETF (ERUS), which maps the MSCI Russia 25/50 Index, as a suitable investment opportunity. From its peak of USD 52.80 at the end of October last year, it fell by around 22 percent to USD 41.13. However, this drop is “entirely due to valuations, while high energy prices have kept earnings expectations stable,” Holtz said. Because in the same period, the price of continuous futures contracts on Brent oil rose, as the expert also emphasizes.

The five largest stocks of the iShares MSCI Russia ETF, which contains a total of 31 stocks, make up more than 56 percent of the portfolio; five of the top 10 holdings are oil and gas companies. This concentration enables market-like exposure to Russia, as the ETF is “incredibly top-heavy,” according to MarketWatch’s assessment of FactSet.

With a share of 19.6 percent, GAZPROM holds the largest position in the ETF. While 94 percent of the analysts surveyed by FactSet recommend GAZPROM shares as a buy, they see upside potential of 51 percent over the next 12 months. LUKOIL follows in second place with a share of 14.47 percent. 87 percent of those surveyed gave the LUKOIL share a buy recommendation, while the 12-month price potential is estimated at 25 percent. Sberank ranks 3rd with a weighting of 12.21 percent. Along with 94 percent “buy” ratings, analysts expect the stock could climb 63 percent over the next 12 months. Norilsk Nickel JSC follows in fourth place with 5.2 percent. 36 percent of the analysts polled by FactSet recommend the stock as a buy with an upside potential of 18 percent. With 4.88 percent, NOVATEK is also one of the five largest positions in the iShares MSCI Russia ETF. 67 percent of those surveyed gave the paper a “buy” rating, while the upside potential over the next 12 months is 32 percent.

VanEck Russia ETF

In addition, the analysts led by Julian Holtz draw attention to the VanEck Russia ETF (RSX) in their report. This contains 29 stocks and is far less concentrated than the iShares MSCI Russia ETF. The top five stocks make up 37.5 percent of this exchange-traded fund’s portfolio. Here, too, GAZPROM is in first place with a share of 8.5 percent. While all analysts polled by FactSet recommend the stock as a buy, they see upside potential of 54 percent. LUKOIL is in second place with around 8 percent. With an 86 percent buy recommendation rate, the share price potential is 28 percent. Sberbank comes in third with a weighting of 7.6 percent, followed by NOVATEK with a share of 6.8 percent. 67 percent of respondents advise buying the share. According to them, it is likely to increase by around 32 percent over the next 12 months. Last among the five largest positions in the VanEck Russia ETF is Norilsk Nickel JSC with a weighting of 6.6 percent. With 40 percent “buy” ratings, the analysts see upside potential for the title of around 21 percent.

So now it remains to be seen how relations between Russia and Ukraine will continue to develop and what impact this will ultimately have on the stock market.

Editorial office finanzen.net

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