While you cannot trade the Russian banks at all in the United States — even the foreign shares move in London — it is worth looking at their financial performance for insight into the global sector.
Russian banks have been benefiting in terms of their operations from strong lending, better margins and lower costs. In fact, the group reported 20% returns on average equity last quarter, which is pretty extraordinary.
However, a lot of this fundamental upside has yet to translate into much performance for the stocks. Perhaps because of the relative lack of ways for foreign traders to play this group, Russia’s bank stocks have lagged the broad market — up 3% at best for a name like VTB while some like Vozrozhdenie have sunk 9%, compared to the Moscow market’s overall 11% advance.
This may indicate relative value here for these names, assuming of course that you find a way to trade them. The easiest exposure to the group for U.S. investors is via the Market Vectors Russia ETF (NYSE:RSX), which has a 13% allocation to financial stocks — including a 7% weighting in Sberbank and 3% of the portfolio in VTB.
SPDR S&P Russia (NYSE:RBL) has a slightly lower financial weighting, almost all of it in Sberbank shares.
Beyond that, short of complicated sector weighting strategies like shorting one of the global emerging markets financial ETFs — EGShares Emerging Markets Financials (NYSE:EFN) or iShares MSCI Emerg Mrkts Financials Idx (NYSE:EMFN) — and going long the Russia ETFs mentioned above, this is more of a story to watch and be ready to trade when an opportunity does emerge.
Neither EFN nor EMFN have appreciable Russian holdings, so if Russian banks get that lift, it could be as a result of institutions rotating their own financial sector allocations out of markets like China and Brazil and into names like Sberbank.
Emerging Money provides insightful and timely information about the increasingly important world of Emerging Market investments. CNBC Emerging Markets Contributor Tim Seymour leads the team of Emerging Money to bring you cutting edge global news and analysis.
About Tim Seymour: Tim is a founder of Emerging Money. He is a founder and Managing Partner at Seygem Asset Management, and The Emerging Markets Contributor to CNBC. Seygem Asset Management focuses on investing throughout the global emerging markets asset class. With a view that emerging and developing economies will continue to outpace the economic growth and advancement of developed economies, Seymour has devoted a career to investing in the dominant markets of tomorrow, today. Seymour’s career has included significant experience in both alternative asset management (hedge funds) and capital markets, having launched two hedge funds, and built the largest Russian broker dealer in the USA. Seymour started his career at UBS, focusing on international credit (cash, swaps, forex) in a specialized hedge fund group (New York). Seymour completed the firm’s training program after graduating with an MBA in international finance from Fordham University. Seymour received his undergraduate degree at Georgetown University.