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There is ‘a lot of value’ in Russian assets despite protests, Goldman Sachs says

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Key Points
  • Navalny, a Russian opposition leader and longtime critic of President Vladimir Putin, is facing a court hearing on Tuesday that could see him imprisoned for more than three years
  • "The ruble in particular, on our estimates, is undervalued by more than 10%, so we think there are prospects going forward," Daly said.
Participants of an unauthorized protest rally against of jailing of oppositon leader Alexei Navalny shout, on January 23, 2021 in Moscow, Russia. E
Mikhail Svetlov | Getty Images News | Getty Images

Despite nationwide protests against the detention of Alexei Navalny, Russian assets are poised to deliver good value to investors, according to Kevin Daly, co-head of CEEMEA research at Goldman Sachs.

Navalny, a Russian opposition leader and longtime critic of President Vladimir Putin, is facing a court hearing on Tuesday that could see him imprisoned for more than three years, and a government crackdown on protests in recent days has triggered talk of international sanctions.

Although acknowledging that there is "no easy resolution" to the political problems in Russia, as more than 4,500 people have been arrested in recent days, Daly said there are three macroeconomic factors that mean the economy may be insulated from geopolitical concerns.

"The protests have been very clear that they are not calling for broad sanctions, they want quite targeted sanctions, and the macro implications of that, I think, will be more limited," Daly told CNBC's "Street Signs Europe" on Tuesday, adding that protesters were concerned that deeper economic ramifications may ultimately hurt their cause.

Secondly, he suggested that the Russian government still has room for maneuver, noting that the authorities responded with substantial fiscal easing during major protests in 2011/12 and have scope to do the same this time around.

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There is 'a lot of value' in Russian assets, Goldman Sachs says

Finally, Daly argued that a lot of the risk premium in Russian assets is already priced in.

"The ruble in particular, on our estimates, is undervalued by more than 10%, so we think there are prospects going forward," he said.

"Currently, there are risks going forward from these ongoing protests and the implications of that, and the risk of sanctions, but actually we think there is a lot of value in Russian assets and the ruble in particular."

In addition, a recent rally in oil prices offers the Kremlin further scope for fiscal easing, with the government's budget assuming an oil price of $43 a barrel, Daly highlighted. As of Tuesday afternoon in Europe, Brent crude was trading at $57.83 per barrel.

"We think they can bring a big boost to the economy in a way that wouldn't put fiscal finances under threat. Given the rise in oil prices we have seen, typically Russian assets would be performing better than they currently are, and this comes back to the point about the significant risk premia that are already embedded into a lot of Russian assets," Daly said.

Should the risk of economic sanctions diminish, Goldman Sachs expects Russian assets, and the ruble in particular, to rally. As of Tuesday, the ruble was trading at around 75.38 to the dollar.