of Single Strategy Performers in 2006
Holiday season shoppers on Moscow's Tverskaya Street
Photo by: Charles Ganske
This week world stock markets took a beating after China's Shanghai exchange lost 9% of its value in one day, and Russian stocks were no exception. Leading Russian companies like Rosneft are heavily invested in expanding their trade with China.
However, this temporary setback shouldn't discourage investors who take the long view of the Russian economy. As Vladimir Kuznetsov, director of financing for the FINAM Investment Firm in Moscow, pointed out before this week's global correction, Russia's stock market was up 92% this year. In comparison, the U.S. S&P 500 index grew by 13.6% in 2006.
Mr. Kuznetsov adds that major Western investment companies like Barclays Global Investors, State Street Global Advisors, Legal and General Investment Management are doubling the size of their stakes in Russia from 5% to 10% of their emerging market fund portfolios. Mr. Kuznetsov quotes J.P. Morgan analysts lauding the Russian government's plans to invest $185 billion in oil and gas revenues into new infrastructure, noting that, "Russia stands out among its peers in the BRIC (Brazil, Russia, India, China) markets."
- The Editors
Click on the extended post to read more.
This Sushi Planet restaurant near Red Square is owned by Rosinter
Another financial story that recently emerged from the blogosphere is the success of Russia-focused hedge funds last year. Financial blogger Greg Newton received an email from one of his readers pointing to a list of the forty top-performing single strategy hedge funds in 2006. The vast majority of these top performers are heavily invested in Russia. Critics would argue that the success of these hedge funds only proves that high-rollers can reap record returns by taking advantage of high global prices for Russian energy and precious metals. However, according to Mr. Kuznetsov, only half of Russia's stock market capitalization comes from oil and gas extraction.
Leading the way for 2007 is Vneshtorgbank, the second largest retail bank in Russia. VTB plans to float $4.6 billion in shares split evenly between domestic and international markets, according to RIA Novosti. VTB wants to follow on the success of its competitor Sberbank's successful privatization IPO earlier this month. Sberbank shares were bought by over 46,000 individual and corporate investors. Russia Blog readers may find it interesting that two years ago, Business Week reported that the expansion of VTB demonstrated the Kremlin's ambitions to keep the Russian banking sector state owned. Now VTB is being privatized. Russia's TransCreditBank also has announced plans to float 20-30% of its stock, estimated to be worth $700 million, in 2009.
Russian stock market performance in the last seven years
Source: Sovereign Global Investment
Sitronics, Russia's largest electronics producer, plans to raise $500 million in capital this year. Sitronics is the high technology subsidiary of Sistema, Russia's largest telecommunications company. Other non-natural resource based IPOs planned for 2007-2008 include:
Arbat Prestige, a perfume and cosmetics retailer
Prodimex, a powdered sugar processor
Rosinter, a holding company for several popular restaurant chains
Ipnet, a broadband and satellite communications provider
Softline, a software developer
Kraftway, a PC and server manufacturer
Pharmastandart, a pharmaceuticals producer
Zillshny J Kapita, a Moscow real estate developer
United Energy Systems CEO Anatoly Chubais
The mother of all Russian IPOs planned in the next few years is the state owned electricity giant Anatoly Chubais. UES recently raised their estimate of their market capitalization from $79 to $110 billion. To put this large number in perspective, Dallas-based utility TXU Corp is in the process of being sold to a consortium of private investors for $26.4 billion in the largest leveraged buyout in American history. Like the old Ma Bell monopoly which existed in the U.S., UES will reportedly breakup into several regional companies to better serve consumers. As we have reported previously here at Russia Blog, Russia's booming economy has strained power grids in Moscow and St. Petersburg that are still heavily dependent on cheap subsidized natural gas for their generating plants. Now that domestic gas subsidies are gradually being scaled back, Russian energy companies need to raise tens of billions in capital to meet surging demand for electricity.
Besides UES, the other remaining "national champions" planning IPOs include United Aircraft Building Corporation (the consortium formed from the old Soviet Sukhoi, Mikoyan Gurevich, Yakovlev, Irkut, Ilyushin, and Tupolev design bureaus) and Aeroflot Russian Airways.
While every financial advisor uses the disclaimer that "past performance is no guarantee of future returns", the process of true privatization (not like the 90s style auctions rigged by the oligarchs) and diversification of the Russian economy from its natural resource base is accelerating.
You can read more about the Russian stock market at Vladimir Kuznetsov's Equity Financing in Russia blog.
