Look Beyond Putin and Oil to the Sweet Spot in Russian Stocks – Barron’s


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Russia’s online retailer Ozon’s logistics center outside the town of Tver. Ozon is Russia’s pure-play e-commerce stock.

KIRILL KUDRYAVTSEV/AFP via Getty Images

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Vladimir Putin has worked long and hard to foster the impression that he is Russia. Investors believe him. Russian stocks wax and wane with the emotional temperature between Putin and the U.S. administration of the day—and of course with oil prices. The market’s read on Putin’s June 16 summit with President Joe Biden was wait-and-see. The VanEck Vectors Russia exchange-traded fund (ticker: RSX) slumped 1%.

It’s easy to forget that 146 million Russians are out there living their daily lives, which are shaped by apolitical global megatrends like digital commerce and internet-driven financial inclusion. It can pay to remember.

Russia tech has a long growth runway ahead of it. E-commerce accounts for less than 10% of retail sales, compared with 25% in China. Household debt is a puny 20% of gross domestic product, says Maria Sukhanova, senior analyst for TMT at BCS Global Markets in Moscow. A clutch of top-notch companies have emerged to fill in the gaps.

Exhibit A lately has been TCS Group Holding (TCS. United Kingdom), parent of online-only Tinkoff Bank. The shares have jumped 130% this year, shrugging off a global tech slump.

Tinkoff’s main business lines are credit cards, spot consumer loans and brokerage. As in other emerging markets, Russian savers faced with plunging interest rates are migrating to stocks. “Russia is no exception to the Robinhood phenomenon,” says Mikhail Terentiev, chief of research at Sova Capital.

Russia’s pure-play e-commerce stock is Ozon Holdings (OZON). It has climbed 90% since an initial public offering last November, driven by sales that are on pace to double annually, Sukhanova says. Ozon is actually half the size of market leader Wildberries, but that firm shows no sign of going public.

TCS and Ozon are overshadowing longer-standing tech champion Yandex (YNDX), whose shares have been flat this year as its core search and ride-hailing businesses start to plateau. Yandex isn’t taking that lying down. It’s investing heavily in its own merchandise arm, Yandex Market, and recently bought a bank to get into fintech. Not to mention its expansion in cloud computing and music and video streaming.

This drive for superapp status will pay off, Terentiev believes. “There’s short-term pain for Yandex from all the investment, particularly in e-commerce, but you shouldn’t underestimate their big ecosystem,” he says. BCS’ Sukhanova is a Yandex-skeptic. “They are looking to e-commerce for growth,” she says. “It’s not that obvious they can achieve it.”

The clock may be ticking on the oil and gas giants who make up a third of Russia’s stock market. But the gathering green revolution could increase the country’s importance as a metals provider for electric vehicles and new power grids.

Shares in UC Rusal (RUAL.Russia), the world’s No. 2 aluminum producer, have jumped by two-thirds this year. The company’s East Siberian smelters run on ecologically virtuous hydropower, while rivals in China and elsewhere still burn up coal.

The sleeper materials stock may be Norilsk Nickel Mining & Metallurgical (GMKN.Russia), the biggest miner of this vital element for EV batteries, and a prolific producer of copper and platinum. “ Norilsk Nickel has the basket for renewable energy,” says Jacob Grapengiesser, a partner at East Capital.

Putin’s shadow will continue to influence Russian sentiment, of course. “When you have geopolitical tensions, investors won’t look at the market,’’ Grapengiesser says.

But it’s not all about him.