Whoa There, Hold Your Horses! – Just Because Noddy, Ballboy, And Their Pals Can't Be Trusted Doesn't Mean Russian Equity Value Is Down The Same Black Hole

How real is the downturn in Russian company valuations and the sell-off in Russian stocks ?

Here’s what the Financial Times reports today, following the cancellation in London of the three Russian IPO’s – Koks, Chelyabinsk Pipe, and now Nord Gold:

“Investor interest in both offerings has been hit hard by the huge outflows from emerging markets following the unrest in Egypt, while the upcoming $3bn-plus offering of a 10 per cent stake in VTB, the Russian state bank, looked to be draining any remaining Russia cash… Hopes for a bumper start to the year for Russian offerings have been hit by a succession of cancellations, as investors pulled out more than $7bn from emerging markets last week

And here’s what we had to say yesterday, before Nord Gold admitted the worst, on the exaggeration of Russian share value in which underwriters Morgan Stanley, JP Morgan, Citigroiup, UBS and VTB all share the blame. The greed of the underwriters is no less obvious than that of their clients.

And finally, if you really care to know what the flow of investor money really says about Russia and Russian equities as a target for value in the global emerging market universe (GEM), here is the latest report from the fund flow specialist, Emerging Market Portfolio research (EMFS), as reported by Alfa Bank and UralSib Bank in Moscow this morning.

First, the chart from the Alfa Bank report, showing that the flow of emerging market (EM) funds into Russia over the past week, and ever since the Egyptian succession crisis erupted, has remained above the bar and positive for another week of global turmoil:


And now the Alfa Bank report that the positive flow of funds into Russia contrasts with outflows of funds from China, India and Brazil:

“Weekly fund flows: Eleven in a row, only positive BRIC
EPFR weekly fund flow data show that, for the week ending February 9, Russia-dedicated funds saw an inflow of some $267m, the 11th consecutive week of positive flows. Total AUMs for the Russian funds in the weekly survey were some $18.4bn, meaning inflows totaled some 1.5% of AUMs for the week.

“By comparison, for the week Chinese funds (both China and Greater China) saw outflows of some $314m, or 0.4% of AUMs, Brazilian funds lost $165m (0.7%), and Indian funds lost $120m (0.4%). EMEA funds overall saw outflows of $54m, or 0.1% of AUMs. Year-to-date, Russian funds have managed cumulative inflows of some $1,649m, or 9.6% of average AUMs over the period, posting positive numbers for all six weeks since the start of the year. Comparable Indian outflows for the period have totaled $415m, or 1.4% of average AUMs, while Chinese funds have seen outflows of $1,728m, or 5.0%, and Brazilian funds have received $903 mln, or 3.5% of AUMs.”.

If you are still unable to see through the Financial Times for an accurate picture of what is happening, here is Uralsib Bank’s tabulation of the contrast between Russian fund flows and the others:  According to Chris Weafer, Uralsib Bank’s global analyst, “Fears that redemptions from emerging market funds would increase last week proved unfounded as investors withdrew less than half what they did the previous week. Russia funds were again the only country specific funds to attract new money among the major emerging markets. This week’s figures should both help calm fears of a mass exodus from the emerging market asset class to developed markets and create a strong case for investors to buy Russia in this current market dip… China funds reported net redemptions of $314 mln, Brazil funds lost $165 mln and India funds were down $120 mln. Turkey funds were particularly badly hit as a contagion from the unrest in Egypt and fears that the unrest may spread to other countries in the region. Last week Turkey funds suffered redemptions of $198 mln.”

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