Goldman goes long (and late) on Russian equities

By Marcus Williams

Research strategists at Goldman Sachs are going long on Russian equities in 2010 on the basis that the country’s growth rate will rebound sharply.

Goldman is forecasting that real GDP will rebound to +4.5% in 2010 and accelerate later in the year after a steep 9.5% decline this year.

Compared with other developed and emerging equity markets, Goldman analysts say Russian equities have been the laggards in recouping the losses since last year.

It added: “Our models suggest that Russian CDS should compress from 204bp to a fair value of 150bp, which may also provide a tailwind. In general, Russian exposure does not seem to be “over- owned”. We are also exposed to rouble strength relative to the USD.”

Goldman, which has a less than a stellar track record calling Russia, may be on the right path this time albeit well behind a compact pack.

RTS, the dollar-denominated index, has jumped by 128% this year.  While the Minister of Finance Alexei Kudrin has said the markets are over-heated, most Russian buy-side funds think there is more to come next year.

Fund flows into Russia have been steadily increasing over the past three months and appear to have bounced back over the past week following some fear of contagion form the Dubai World affair.

According to the fund tracker EPFR, Russia and CIS attracted inflows of $122. This was well up on the previous week’s $21m and outpaced inflows to Brazil ($100m), China($23m) and India ($28m).

US rival investment bank Morgan Stanley also weighed in today with its study bigging up Russia’s prospects in 2010, dubbing it “the best in the EMEA region.”

In its  analysis, Morgan Stanley said Sberbank MTS, Evraz and Rosneft were in its top ten most promising punts.

Watch out for Merrill Lynch next Tuesday for more rosy Russia predictions !