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HSBC GAM: Russia opportunities outside energy sector

The equity market in Russia had a miserable 2017, but it may perform better in 2018 due to the expectation of interest rate cuts and an expanding domestic economy, said Nick Timberlake, head of equities at HSBC Global Asset Management.
Moscow kremlin at sunset

“There are some countries where we see room for more rate cuts, for example Brazil, Russia and India,” Timberlake said during a media briefing in Hong Kong on Monday. “The rates in these countries are still falling, albeit slowly and getting close to the bottom.”

One of the funds Timberlake manages is HSBC GIF BRIC Markets Equity. By geographic location, the fund holds 27.7% of the assets in Russia, 23.7% in China and 23.7% in India, according to the fund’s factsheet.

Among the group, Timberlake said Russian equities have comparatively low valuations. The MSCI Russia had a terrible year to July, plunging about 15% in US dollar terms while most other markets increased. Year-to-date it is up 5%, according to FE data.

“The stock market in Russia is generally priced less than book value. The discount may relate to political conditions and external sanctions,” he added.

He said he has closely watched political developments and believes the sanctions, imposed by the US and Europe and other countries due to Russia’s 2014 annexation of Crimea in Ukraine, will not affect listed companies.

Although the energy-related firms stand to benefit from a recovery of oil prices, this is not the sole attractiveness of the market, according to Timberlake. “Russian people like shopping, as much as the Chinese do. This is why we focus on the investment themes of domestic consumption. We are also holding some big banks in Russia,” he said.

In the fund, the financial sector accounts for 31.46% of the assets, FE data shows. State-owned Sberbank of Russia, representing 7.8% of the total portfolio, was the top holding as of the end of November.


HSBC GIF BRIC Equity Fund versus the sector and its benchmark MSCI indices of the BRIC countries.

Source: FE, returns in US dollar

Part of the Mark Allen Group.