With European debt issues, global growth concerns and political unrest in the Middle East severely complicating the development of investment strategies for 2012, it may be useful to consider where markets stood at the start of 2011. Russia’s GDP growth outlook for the coming year is marginally lower than at the start of 2011, though not dramatically so despite the weakened global backdrop. And importantly, the Urals Med oil price is around 19% higher now, at $110/bbl. We note that MSCI Russia is entering 2012 after underperforming MSCI EM last year, whereas Russia had outperformed going into 2011. Despite this, all MSCI Russia sectors with the exception of consumer staples now trade at a discount to EM peers. While Russia’s 12M fwd P/E has remained low for several years, we have constantly argued that this is largely a product of a justifiably low P/E for energy stocks (low output growth and high taxation). For other sectors to be trading at such discounts is less common and these discounts have widened since the start of 2011 (the premium for consumer staples has shrunk significantly). While uncertainties remain over, for instance, the health of the Chinese economy and Russia’s presidential election in March, if we find that the European debt saga has turned a corner (and that is a big 'if'), then the recent cheer in global markets may stick.
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