1.Historically, Russian Equities have always been cheap.

The chart below shows P/E ratios for various EM countries, for the period 2005-2025. Generally speaking, the higher the PE ratio, the more expensive the equities, and vice- versa.

It is strikingly obvious that Russia has been the odd one in the EM Equities world in terms of valuation.
Several factors can explain this recurring cheapness:

• Russian government debt has been too expensive (i.e. rates too high) due to western Rating Agencies being too strict in their rating (maybe some political motivation behind that?...). It is indeed difficult to explain how Russia’s government debt could have a worse rating than France or Italy. This resulted in local RUB government ratesbeing too high hence PE ratios undeservedly depressed.
• Some fear/stigma associated with investing in Russia for the large western institutional investors(USSR collapse, 2014 sanctions).

2.Since February 2022, “Cheap” became “Cheaper”.

Russian equities used to be easily accessible to all investors across the world, with the major brokers providing direct access either on Moscow Exchange for shares or on NYSE-LSE through Depositary Receipts.

Following sanctions fromthe West and countersanctions from Russia, onlyRussian citizens alongside citizens from countries classified as “Friendly” by Russia are now allowed to buy Russianshares. No more cheap Russianequities for western investors.

Ceteris Paribus, less buyers means less buyingpressure on prices means lower prices. This imbalance is particularly acute for large Russian Blue-Chip equities. In a nutshell,these equities are way too big for just the Russian market, and that’s why Depositary Receiptswere previously listedon NYSE and LSE. Hence large Russian Blue-Chip equities which usedto be cheap are now even cheaper...


3. How cheap are we talking about?To really understand the level of undervaluation that we are facing, we need to put some numbers together.

Let’s start with Sberbank, by far the largest bank in Russia:

• EPS (Earnings-per-share) for 2025 are estimated at 72 RUB (Source: BCS Broker).
• At the time of writing of this article, Sberbank shares trade at 282 RUB. So this gives us a PE ratio of 3.9 (!), with an expected dividend yield of 12.7%, as Sberbank gives 50% of its Net Income as dividends.
• Below is a chart of historical and expected dividends (just x 2 to get EPS)

Here is the kicker with Sberbank: One could think of Sberbank as a “boring C profitable” Retail C Corporate bank. This would be forgetting about the AI department inside Sberbank that is amongst the largest (if not the largest) AI department in Russia...

One last thing in case one is worried about Sberbank solvency: when the USSR
collapsed, Sberbank didn’t.


Let’s now turn to the sector for which Russia is most famous for: Oil. And let’s look at the largest privateRussian Oil company: Lukoil.

• For 2025, Lukoil EPS is forecasted at 954 RUB (Source: BCS Broker). At the time of writing of this article, Lukoil trades at 5 914 RUB, so a PE ratio = 6.2. For comparison, Exxon Mobil tradesat around twicethat level usingEPS 2025.
• If one looksat EPS Consensus of 1327RUB, Lukoil PE = 4.5.
• For 2025, dividend is expected at around 12% (Lukoil gives 100% of its Free Cash Flow as dividend).
• Below is a chart of historical and expected EPS (Source: BCS Broker).
• Lukoil has proven reserves of around 18-19 years vs around 12 years for Exxon Mobil.
• And thanksto western sanctions, Lukoil bought 10% of YandexRussia for the bargain price of USD 500 M, in case one wants exposure to Russian Tech C AI...

Finally, this last example is quite interesting because it is a Russian company with a dual listing on MOEX and HKSE: Rusal,the Russian aluminium giant.

The shares in Hong-Kong trade freely, even if the vast majority of western brokers have closed access to this name. At the time of writing, using the prices of Rusal shares and the FX rates HKDUSDC USDRUB, we arrive at the following:

The HKSE sharesare 56% higherthan the MOEX shares...If all brokers weregiving access to this name in HK, the difference would be even higher. This particular case gives an idea of how undervalued Russian shares are, and how much “catch-up” could be realizedonce trading on Russian sharesgoes back to normal.