The Russian Federation First Mercantile Fund lost 4.7% in the 1st Quarter of 2017
The Russian Federation first Mercantile Fund (“RFFMF”) gave up some of the strong 2016 profits (+69%) in the first quarter. The price of oil dropped 7% while the ruble continues to strengthen and gained nearly 9%. Investors took some profits and Russian stocks lost single digits during the quarter.
Valuations remain at a 50% discount (P/E) vs Emerging Markets in general and 65% discount to the World stock markets despite an impressive dividend yield of 5%.
Russian economic growth has started accelerating after two years of recession. The GDP in the 4th quarter 2016 was up 0.3% and some sectors of the Russian economy saw significantly higher GDP growth rates.
The production and distribution of electricity, gas and water saw annual growth rates of 2.6% while the agriculture sector saw 3.6%. The annual growth rate of Russian GDP in the first quarter of 2017 may be in the range of 0.4-0.7%, according to the Bank of Russia commentary. So growth is picking up while we see benign inflation data, with the latest CPI numbers of 4.3% against 5.4% in December 2016. On top of this we saw gold and forex reserves rise by 5.2% in the first quarter to 399 billion USD and real wages grew with 1.3% in February.
These economic data leads us to believe that we may see the potential of reducing the key rate in the first half of
- After the correction in the market in the first quarter, coupled with strong economic data and the continued deep discount
to peers, Russian equities look attractive.