Analysis: Russia sell-off spurs hunt for bargains

Sun Mar 30, 2014 1:11am EDT
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By Gertrude Chavez-Dreyfuss and Daniel Bases

NEW YORK (Reuters) - Rising tension between Russia and the West has rattled the country's stock and bond markets, but some big money managers see the turbulence as an opportunity.

Russia's equity market has plummeted 18 percent so far this year. Foreigners dumped the country's stocks, bonds and the ruble following the early March invasion of Crimea, a territory of Ukraine. It now faces economic sanctions that could worsen if the crisis escalates.

Investors have reacted with their feet. The ruble is down nearly 9 percent on the year, and investors have pulled about $4.4 billion from stocks and $4.1 billion from bonds between September 2013 to the middle of March, according to the latest data from EPFR Global.

"Russia's stock market right now is one of the cheapest in the world, and probably one of the most hated," said investor and commodities guru Jim Rogers, chairman of Rogers Holdings, in Singapore. "This is the time to buy Russia."

Those betting on Russia now should have a long-term horizon. After citizens in the Crimean peninsula voted for annexation by Russia, the United States and European Union reacted by issuing sanctions that, while limited in scope, could be broadened.

Russia's economy has weakened as inflation has risen and investments have stalled. IMF data shows the country's reserve assets declined to $493.3 billion in February from $509.6 billion in December as it has defended its currency. The central bank raised interest rates by 1.5 percentage points to stem the ruble's fall.

Rogers, who has been investing in Russia for the last 1-1/2 years, said he bought Russian stocks last week. He said if more sanctions are imposed and the equities market declines further, there would be more buying opportunities in Russia.

Rogers said he is looking for non-energy companies - a tall order considering the RTS Index .IRTS of 51 leading Russian companies is heavily skewed toward energy (58 percent of the index) and basic materials (13 percent).   Continued...

A man walks past an information screen on display inside the office of the Moscow Exchange in the capital Moscow March 14, 2014. REUTERS/Maxim Shemetov