How Can the Valuation Gap of Russian Companies Be Overcome?

Thursday, April 18th, 15:15-16:30

There can be little doubt, based on consensus forecasts, that Russia’s equity market is trading on substantial valuation discounts to both developed market and emerging market peer groups. A recent report from Sberbank Investment Research quantified the valuation discount to global emerging markets in the range of 25-50%. The same report also highlighted that Russia’s equity ‘risk premium’ (the excess return that investors demand for taking on relatively greater risk) is materially higher than most peer group markets and that this risk premium has widened to a nearly 10y high over the past two years. The panel will debate and attempt to explain why this valuation gap exists and outline what might be done by corporates, government and other stakeholders to close it. The panel will examine the factors that either increase or decrease appetite for domestic and international institutional investors to allocate greater funds to Russia both top-down and bottom-up. The top-down factors impacting investor sentiment and future behavior include the political outlook, macro and microeconomics, interest rates, inflation, etc. Bottom-up factors include the financial performance of individual companies and sub-sectors, their use of cash and the effectiveness of their in-market execution and competitive strategies . Finally, corporate governance issues impact both top-down and bottom-up considerations of ‘perceived value,’ with profound implications for government policy and corporate strategy.

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