The Russian market appears to have turned the corner. The rouble-denominated Micex index is up by 11% this year, while the MSCI Russia index has jumped by almost a quarter in dollar terms, as Dimitra DeFotis points out in Barron’s.
The recession is easing, with the economy expected to contract by up to 1% in 2016 after sliding by almost 4% last year. Next year the International Monetary Fund expects growth of 1.1%. The gradual recovery in the price of oil has been the key driver, while the central bank will soon be able to add to the momentum by cutting interest rates now that inflation – boosted by the depreciation of the currency – is falling again.
The central bank could reduce borrowing costs by 2% next year. At seven times trailing earnings, moreover, the MSCI Russia index looks very cheap compared with other emerging markets, while a 4.5% dividend yield also implies upside potential.