The first quarter of the year was generally favourable to Russian market supported by high and stable oil prices which ranged from US $ 60 to US $ 65 per barrel. However, the market growth continued only for two months and after that, in March, the market experienced approximately 5% correction from its high as a result of deterioration of foreign relations between Russia and West.

In short term, this correction can become deeper due to further growth of geopolitical tensions and expectation of new sanctions implementation against Russia. In our view, it will be a good opportunity for buying because today the Russian market is traded at very attractive levels and has a 7.5 P/E ratio and 6% est. dividend yield of 15.2 P/E and 2.79% est. dividend yield for MSCI Emerging Markets Index.

As of 30 March, Russia has US $ 457.7 bn in its foreign and gold reserves. Also in February S & P agency upgraded Russia’s rating to investment grade “BBB-” with stable outlook so today Russia has two investment grade ratings from S&P and Fitch.

We expect the Russian market will reverse after correction. Please note that the sanction launched from the US towards Russian oligarchs in the beginning of April was targeting wealthy businessmen who were deemed to be too close to the Kremlin. Sanctions were not intended to hurt the economy and the population but to send a clear message to the Kremlin. Stocks corrected sharply when the sanctions where launched but have started a recovery post-sanctions.

Domicile: Bermuda, Source: Bloomberg, AP Asset Management

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