By Andrei Skvarsky.
Sberbank, Russia’s biggest lender, has released a research report comparing Russia and Turkey as similar markets and arguing that Turkey is doing somewhat better than Russia today but that the situation may reverse before long.cheaper penetration stories like X5 Retail Group in Russia, they say.
“Both countries are outsiders to Europe, struggling to escape the middle-income trap. They both face the risk of greater state capitalism, they both swing between Westernizing and conservative influences, and each has equity and Eurobond markets dominated by foreign investors,” Kingsmill Bond, chief strategist at Sberbank’s investment arm, Sberbank CIB, and Sinan Goksen, chief strategist at Sberbank-owned Turkish lender DenizBank, say in their report, entitled “Russia and Turkey: The Outsiders”.
Politics are a key market driver in both countries, other top factors being oil in Russia and federal fund rates in Turkey, Bond and Goksen say.
The current decline in global emerging markets is a risk to both countries: as high-beta markets driven by commodity prices and foreign capital flows, both are vulnerable to effects of weak growth in China and a strong dollar, according to the two strategists.
Turkey is in a better position than Russia as the risk of lower oil prices is assumed to be higher than the risk of a spike in federal funds rates, and the prospect of significant structural reform in Turkey is “more credible” than that in Russia, Bond and Goksen argue.
However, Russia may yet get ahead of Turkey, according to the report.
Oil prices are likely to go up eventually, Russia would get round to long-awaited serious reforms, Moscow may patch up its conflict with the West over Ukraine, the US Federal Reserve may raise its rate earlier than expected, or there might be damaging political developments in Turkey, Bond and Goksen say.
Potential sources of outperformance are non-bank sectors in Turkey, specifically aviation, retail and steel production, and defensive plays such as Surgutneftegas, onshoring plays like Moscow Exchange, and cheaper penetration stories like X5 Retail Group in Russia, they say.
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