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Forever and ever: Putin forever! What this means for the Russian economy and the stock exchange message


by Jörg Billina, Euro am Sonntag

No to the eternal Putin! “- the campaign of his opponents, which also includes the Communist Party, did not catch on. Wladimir Putin has won the constitutional reform he initiated, passed by parliament and submitted to the citizens for a vote. Who checked “yes”, among other things, voted for a regular increase in pensions. But the most important article of the new constitution is: The Kremlin ruler can stay in power until 2036. Putin would then be 84 years old.

Although he no longer has a popularity rating of 85 percent, as in 2015, 69 percent still agree with his office. Even if real incomes have declined by 7.5 percent compared to 2013, according to, the Russians blame primarily on their own government, or they blame the economic sanctions of the western industrialized countries. The majority of Russians see the former intelligence officer Putin as the guarantor of stability.

Security and irritation

“Many investors also value Putin – at least as long as no convincing personnel or political alternative enters the political stage,” says Sebastian Kahlfeld, manager of the DWS Russia fund. Chaos and domestic political turmoil like in the days of Boris Jelzins, Putin’s predecessor in office, are in any case not a good environment for an equity investment. “Putin’s course in foreign policy, on the other hand, often causes irritation among international investors,” says Kahlfeld.

For investors with a longer investment horizon, engagement during Putin’s tenure has always paid off. The iShares MSCI Russia ADR / GDR achieved an increase of 50 percent over five years. The MSCI World, on the other hand, only managed around 35 percent in the same period. However, good nerves are required. “The volatility is high, and there have been major periods of loss in the past ten years,” says Kahlfeld. In 2014, when Russia annexed Crimea, the Moscow stock exchange lost 37 percent. Prices fluctuate violently this year too. The iShares MSCI Russia ADR / GDR has been down 25 percent since January. In the past three months, however, the ETF has already caught up around 20 percent.

Raw material prices are one of the decisive factors influencing prices. Gas and oil represent more than 50 percent of export earnings, high-dividend companies like Gazprom and Lukoil are heavily weighted in Russian indices. But the oil price fluctuates. In 2018, Russia made $ 700 million a day selling oil and gas. In the current year, the yield, at least so far, is much lower. While the black commodity was trading at $ 62 a barrel at the beginning of the year, it averaged only $ 38 in the second quarter.

One reason for the correction is the oil war between Saudi Arabia and Russia in March. At first neither side could agree on a continuation of the production cuts. Above all, the corona pandemic has caused demand for Russian oil to collapse.

Meanwhile the price is rising again. Riyadh and Moscow have settled their dispute. The experts do not agree on whether the recovery is sustainable. While BNP Paribas predicts continued price pressure due to full stock, JP Morgan analyst Christyan Malek doesn’t want to rule out a super cycle. As a result of a supply deficit, the oil price could climb to $ 190 by 2025.

Interest at historic lows

In addition to the recovery in the oil price, the central bank is motivating investors to buy. Russia is hard hit by Corona. The International Monetary Fund predicts a 6.6 percent drop in overall economic output.

To limit the economic damage, central bank head Elvira Nabiullina recently lowered the key interest rate by 100 basis points to 4.5 percent. This is the lowest rate since the end of the Soviet Union and a completely different rate than in 2014. At that time, interest rates had to be raised to stop the ruble from falling. “But Russia’s currency is currently proving to be relatively stable, with inflation falling moderately at three percent,” says Kahlfeld. He does not want to rule out further cuts.

Compared to other central banks such as the American Fed, Nabiullina, however, does not buy government bonds. It also does not purchase corporate bonds with poor credit ratings. “Russia’s central bank is very conservative and is not exposed to political pressure,” Kahlfeld analyzes.

The volume of government stimulus measures is also lower than that of the industrialized countries. Russia adheres to the principle of sound fiscal policy. The government plans to add 64 billion euros to ongoing modernization programs by the end of 2021. The United States, on the other hand, is spending 2.8 trillion euros.

The prospects for Russian stocks are not diminished by this. “In the lockdown, IT-savvy Russians have intensively dealt with the stock market and used the low valuations to get started, also because investment alternatives are collapsing due to falling interest rates,” said Kahlfeld. They should remain invested to compensate for lost income. Not only are oil stocks sought, consumer and technology stocks are also bought. Putin’s growing interest in the stock market is a good thing. Despite the crisis, criticism of his course should not be too loud.


Investors have entrusted Sebastian Kahlfeld with around 135 million euros. The emerging market expert has invested over 50 percent of this in oil and gas stocks such as Lukoil, Gazprom and Tatneft. According to the factsheet, the mining company Norilsk Nickel is also heavily weighted. Kahlfeld also sees potential returns with the consumer value X5 Retail Group and Sberbank. Over the past five years, the fund has achieved an average annual increase of around nine percent.

Russian stocks are cheap. The 17 companies listed in the index paper have an average price-earnings ratio of around five. This motivates investors to buy despite the severe slump in growth. After the strong stock market correction in February and March, prices in Moscow recovered. Among other things, an increasing oil price speaks for an entry. Energy values ​​account for over 50 percent of the funds. Price fantasies are also sparked by interest rate cuts by the central bank.

The fund is suitable for investors who recognize entry opportunities in emerging markets after the downward slide. The two managers Nicholas Field and Tom Wilson have currently weighted Russian stocks at around nine percent. They currently see more opportunities with Chinese companies; the Middle Kingdom is represented with 36 percent. The portfolio, which currently consists of 55 shares, also includes companies from Brazil, South Korea and South Africa.


Image sources: Sasha Mordovets / Getty Images, E.O. /

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