There’s a host of reasons why you would want to steer clear of investments in Russia right now. The hostilities with Ukraine could still develop into a larger confrontation with the West, including harsher sanctions or worse, and the World Justice Project ranks it 80th in its rule of law index (tied with Egypt and Mexico, and just below Cote d’Ivoire). But Firebird Management co-founder Ian Hague presented two companies that he thinks value investors should look at during Grant’s Pariah Panel at the recent fall conference.
Sberbank holds 45% of Russia’s retail deposits
First up is Sberbank Rossii OAO (MCX:SBER) (OTCMKTS:SBRCY), the largest bank operating in Russia by a fair margin with 45% of retail deposits, and more than a quarter share of assets, capital, and loans in the Russian banking sector. Even more important, the Russian government already has a majority interest in the bank so there is less political risk than other major Russian companies face.
“Everyone in official Moscow really thinks twice about the implication of any policy innovation on Sberbank and its deposit base. We like that. That’s a force for stability within the banking system in Russia,” said Hague, Grant’s reports.
Sberbank Rossii OAO (MCX:SBER) (OTCMKTS:SBRCY)’s common stock has been trading at a discount to NAV and a multiple of less than 5x after sanctions convinced most foreign investors to sell their stakes and look elsewhere. In addition to giving investors exposure to the Russian economy, the Russian banking sector in particular isn’t as developed as Europe or the US, which gives the trade more potential upside.
Investing in the Moscow Exchange (literally)
Hague’s other idea follows a similar theme, the Moskovskaya Birzha OAO (MCX:MOEX), which handles all of the currency, forex, bond, and equity trading in Russia: there aren’t other exchanges or dark pools in Russia competing with it. Like Sberbank, that means the government has a vested interest in keeping the company running smoothly, and according to Hague everyone has an interest in keeping the central point of doing trades open and fair.
As you can imagine, Moskovskaya Birzha OAO (MCX:MOEX) generates a lot of fees and it is a clear way to gain exposure to the Russian economy since all that you would need to benefit is more activity in general (and thus more fees) instead of trying to pick individual winners and losers.
See the slides from the presentation below