An Absolute High?

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¿Un máximo absoluto?
Photo: Dave Kellman. An Absolute High?

UK equities remain elevated, with muted volatility, but the next ‘macro shock’ could quickly change this backdrop.

The FTSE 100 Index broke through its all-time high when it moved above 7,000 in spring this year. It has since retreated but remains at elevated levels. Investors are rightly wondering whether the market can advance further or if they need to prepare for volatile markets.

The FTSE 100 Implied Volatility Index (IVI) 30 Day measures volatility. It is derived from the prices of underlying FTSE 100 options, and can be considered a ‘fear gauge’ by investors.

Volatility trends

The chart plots the FTSE 100 IVI Index against the FTSE 100 Index. It is clear that rising markets are often characterised by periods of low volatility, while falling markets typically exhibit increased volatility. Euphoria appears to be accompanied by smoother markets than panic. Psychologically this makes sense; numerous studies have shown that humans feel losses more than gains of the same value. Economists call this “loss aversion”. When losses begin to accumulate in the market this can rapidly descend into self-reinforced panic as confidence in the prices of stocks evaporates.

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Volatility is, therefore, not typically welcomed by investors. However, our strategy can exploit this volatility in share prices, aiming to convert it into a stream of absolute (positive) returns for investors. We blend two trading strategies within the Henderson UK Absolute Return Fund. ‘Core’ positions, typically one third of the fund, constitute long-term views on earnings growth potential of underlying companies. ‘Tactical’ positions, typically two thirds of the fund, take advantage of factors influencing stock prices over a shorter timeframe. Both strategies can either go ‘long’ or ‘short’.

Macro effects

It is these tactical positions, in particular, that equip us with the potential to generate positive returns whatever the market backdrop, and there are plenty of macroeconomic issues to keep investors concerned: the timing of interest rate rises; Greece; and Spanish elections in December, to name but a few.

We may not be able to consistently forecast what (or when) the next ‘macro shock’ will be, but it is a fairly safe assumption that there will be one, and that stock market volatility will spike. 

Case study

Volatility has been historically low in the last couple of years, although it picked up ahead of the UK general election in May 2015. In the run-up to the election, we took some tactical short positions in those sectors that were likely to be penalised if Labour won, such as selected bank, utility and transport stocks. Before the unexpectedly definitive result came through, we were able to close many of these tactical short positions, and in some cases, reverse them into long positions, generating strong returns for the strategy after victory for the Conservative party was announced.

Ben Wallace and Luke Newman are Co-Managers of the Henderson UK Absolute Return Fund.

Henderson Global Investors Launches Global Multi-Asset SICAV

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Henderson Global Investors lanza una SICAV multiactivo global
Photo: Hernán Piñera. Henderson Global Investors Launches Global Multi-Asset SICAV

Henderson has expanded its global multi-asset portfolio offering with launch of the Henderson Horizon Global Multi-Asset Fund (SICAV). This is Henderson’s first UCITS multi-asset fund and further broadens the range of global products offered by Henderson Global Investors.

The Fund will be managed by both Bill McQuaker and Paul O’Connor, with additional support provided by Chris Paine, Director of Research. The team has a 10 year track record in multi-asset investing.

The Henderson Horizon Global Multi-Asset Fund will launch upon the merger of the Henderson Diversified Growth SIF, and its initial assets under management will be around £100 million.

The Fund expects to build long term attractive returns with lower volatility than equity markets. This is achieved by making flexible, conviction-led asset allocation decisions across a broad range of asset classes and strategies.

Greg Jones, head of EMEA retail and Latin America says, “The launch of the Henderson Horizon Global Multi-Asset Fund allows clients based outside of the UK to access the skill set of our highly regarded multi-asset team in a structure that is more familiar to them.

“Following the launch of the All Asset Fund in our US mutual range almost three years ago, the new fund will effectively complete the footprint of our global multi-asset offering.”

Bill McQuaker, co-head of multi-asset adds, “The multi-asset market continues to grow, with the total market valued at around £126.5bn.

“The current environment of historically low interest rates and elevated asset prices exposes investors to a range of risks and opportunities.

“By actively managing allocations to a range of asset classes and strategies, we aim to capture returns while protecting investors’ capital during more difficult market environments.”

Pioneer Investments Posts Record €10.7 Billion Net Sales in First Half of 2015

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Pioneer Investments duplica sus ventas netas y alcanza nuevo récord en el primer semestre del año
CC-BY-SA-2.0, FlickrPhoto: historias visuales, Flickr, Creative Commons. Pioneer Investments Posts Record €10.7 Billion Net Sales in First Half of 2015

Global asset manager, Pioneer Investments, posted record inflows of €10.7 billion globally for the first half of the year, reflecting continued positive momentum across all regions and channels. Building on the first quarter of 2015, Pioneer Investments saw €3.6 billion positive net sales in the second quarter positioning the firm as one of the leading players in the industry. According to Morningstar mutual fund flows data, Pioneer Investments ranked 8th in Europe and 15th worldwide year-to-date through June.

The firm’s AuM increased by 19% YoY with assets under management standing at €221 billion as of June 30, 2015. Pioneer Investments’ product range attracted strong flows from markets such as Germany, Italy, Iberia and Latam amongst others, with the firm’s US and Asia businesses also recording positive momentum.

Commenting on these results, Giordano Lombardo, CEO and Group CIO of Pioneer Investments said, “We are extremely pleased to have again ranked amongst the industry’s top players in terms of fund flows, reflecting our clients’ trust in Pioneer’s investment process. We are seeing especially strong growth in our liquid alternative and outcome-oriented strategies. Our multi-asset mutual fund range attracted particularly strong inflows ranking third worldwide year-to-date through June.”

He added, “While our macroeconomic outlook remains reasonably optimistic for the rest of the year, we do expect market volatility to remain heightened, largely driven by geopolitical factors. Our priority remains to deliver strong investment results and industry-leading service and support to our valued clients.”

A Bipolar Economy in USA: Strong Consumer Economy vs Weak Industrial Economy

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La economía bipolar de EE.UU.: consumo fuerte e industria débil
CC-BY-SA-2.0, FlickrPhoto: dpitmedia, Flickr, Creative Commons. A Bipolar Economy in USA: Strong Consumer Economy vs Weak Industrial Economy

Janet Yellen and her colleagues at the U.S. Federal Reserve (Fed) will spend the coming weeks and months contemplating the timing of an increase in short-term interest rates. While a cynic might describe the Fed’s behavior as “reactionary,” the Fed itself prefers the term “data-dependent.” As the Fed monitors incoming data, it will be searching for signs of the overall strength of the economy and any associated inflationary pressures. In so doing, the Fed is likely to find a two-speed economy, with the general health of the U.S. consumer improving rapidly, while the industrial side of the economy continues to struggle, says Eaton Vance in a report.

Part of the explanation for this seeming disconnect in economic data lies with energy prices. Over the past 12 months, the price of a barrel of oil has fallen 43%, from $105 to $60. This has led to a drop in average U.S. gasoline prices from approximately $3.70/gallon to $2.75/ gallon. With more money in their pockets, U.S. consumers (at least those who drive) are apparently feeling somewhat better about things. Accordingly, the University of Michigan Consumer Sentiment Index recently neared its five-year high.

While the collapse in oil prices has been good news for the consumer, it’s bad news for many industrial companies. Oil and gas is an important end market for capital goods and equipment manufacturers. “We have been struck by how rapidly the energy sector cut expenses at the beginning of 2015. North American exploration and production companies tell us they have cut capital spending by roughly 35% this year. This has had a ripple effect throughout the supply chain, well beyond the direct exposure of oil and gas equipment. The softness in the industrial part of the economy has begun to manifest itself in the form of lower utilization rates at U.S. factories”.

Aside from lower energy prices, another big reason for the greater optimism on the part of many consumers is the recent improvement on the jobs front. After topping 10% in 2009, the U.S. unemployment rate has steadily fallen since then and is now at what many would consider a more “normal” level – 5.3% as of June 2015. Perhaps even more telling is that wage growth has finally begun to pick up after years of stagnation.

Bringing it back to equities

Understanding the relative health of different segments of the economy is important, but for equity investors, the key question is always, “What’s not priced in?” Looking at the trailing 12-month performance of the consumer discretionary and industrials sectors within the S&P 500 Index, it seems clear that the U.S. equity market has begun to figure things out, as consumer discretionary stocks have handily outperformed industrials over the past several months.

“This divergence of performance between the two sectors has led to widening valuation differentials: Consumer discretionary stocks were recently valued at 19.5x forward EPS estimates, whereas industrials stocks were only valued at 16.3x. In the Eaton Vance Large-Cap Value strategy, we have recently been cutting back our consumer discretionary exposure and have been adding to industrials. Meanwhile, in our growth strategies, we have recently had underweight positions in industrials. Our growth team has continued to be optimistic about the outlook for companies that it believes to be benefiting from strong, secular growth trends in the areas of consumer, technology and health care, among others”.

Regardless of where there may (or may not) be opportunities in today’s equity market, their view remains that true bargains are far from plentiful. However, that could change in the months ahead. “In the interim, we continue to believe investors should selectively favor shares of companies with skilled management teams that allocate capital well”.

Edmond de Rothschild Group Opens a Branch in Zurich

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El grupo Edmond de Rothschild abre una sucursal en Zúrich
CC-BY-SA-2.0, FlickrPhoto: Jeckman, Flickr, Creative Commons. Edmond de Rothschild Group Opens a Branch in Zurich

Present in Switzerland since 1965, Edmond de Rothschild has further expanded its operations by opening an office in Zurich on 1 July this year. The Group is thus strengthening its offering of private banking and asset management services for German-speaking and international clients.

The Zurich agency marks the Group’s fifth location in Switzerland in addition to Geneva, Lausanne, Lugano and Fribourg.

“Switzerland is our foremost market in terms of assets under management and client numbers. While traditionally we have concentrated on the French-speaking area and Ticino, we are now determined to grow in the German region where we perceive real market demand,” said Emmanuel Fievet, CEO of Edmond de Rothschild (Suisse) SA.

The Zurich agency activities

Edmond de Rothschild boasts a full private banking offering that ranges from investment solutions, portfolio management and risk analysis and control to wealth engineering, corporate finance and access to exclusive opportunities. The Group provides each client with tailored services. “Our approach is based on catering to clients’ individual needs and taking account of their individual risk profiles. What makes us stand out is the power of our brand, the experience of our teams and the quality of our management,” Fievet emphasised.

In asset management the Edmond de Rothschild Group aims to grow its institutional business, mainly with pension funds, vested benefits institutions and insurance companies. It also wants to expand the external distribution of its investment funds. “We have a broad range of products and solutions that can be accessed by all Swiss investors and are capable of meeting their expectations and requirements. In addition we have a line of real estate funds that features the Swiss market and that clients in Zurich have owned shares in since 2012,” said Christian Lorenz, Chairman of the Executive Committee of Edmond de Rothschild Asset Management (Suisse) SA.

Rate Hike in the US: the Arguments and the Effect

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Subida de tipos en Estados Unidos: ideas de Robeco para proteger la cartera
Photo: Day Donaldson. Rate Hike in the US: the Arguments and the Effect

There are clear indications that the Federal Reserve is going to raise interest rates for the first time in more than nine years this September. Kommer van Trigt, manager of the Rorento Total Return Bond Fund, looks at the arguments for and the likely effects of a rate hike.

The Fed is on course to raise rates in the autumn. In mid-June, Fed chair Janet Yellen stated that thanks to the strengthening economy there is room to raise the federal funds rate. This official interbank rate currently stands at an all-time low of 0.125%. She also made it known that in future rates would rise less rapidly than the Fed had originally anticipated.

In a normal cycle, rising inflation and the threat of an overheated economy resulting from too high a growth rate often trigger an interest rate hike. At the moment this is certainly not the case. In the last three years, core inflation in the US has fluctuated between the one and two percent level and since 2010, economic growth has moved in a bandwidth of one to three percent.

In previous cycles, economic growth was around four percent at the point when the Fed implemented a first rate hike. On the basis of those figures, a rate hike seems by no means a necessity. That makes you wonder why Yellen alludes with such certainty to a rate hike after the next Fed meeting in mid-September.

Building up weapon reserves

“One important reason for a rate hike is that the central bank want to build up its weapon reserves for the future”, explains Van Trigt. “If the US economy falls into recession, there is currently no room whatsoever for a further rate cut. The Fed wants to ensure that it does not have to rely on taking a whole range of unorthodox steps in such a scenario.

What Yellen also wants to prevent is a repeat of the so-called ‘Taper Tantrum’ of 2013, when a wave of selling engulfed the bond market after former Fed chair Ben Bernanke alluded to higher rates. “There is a much better chance that financial market stability will remain intact if the increase in interest rates takes place gradually, and if the market is made aware of the Fed’s plans”, explains Van Trigt to clarify this second argument for raising rates without it being economically necessary to do so.

In such a scenario, fixed income markets at least have plenty of time to come to terms with the idea of a rate hike and up to now the central bank has been pretty successful in managing market expectations. According to Van Trigt, this scenario is not without its dangers, however: “A rate hike is approaching, but the market is only pricing in a minimal rise of 12.5 basis points in September and 25 basis points in the months that follow. If these rate hike steps occur earlier than planned this could have a major impact on the prices of short-dated paper.”

Vulnerable market segments

The approaching rate hike in the US is the reason why we have reduced Rorento’s exposure to those segments of the bond market where this can hit hardest. “The fund is still invested in US bonds, but its interest rate sensitivity (duration) for bonds with a maturity of seven years or less has been brought back to zero”, says Van Trigt. Another part of the bond market that is vulnerable to rising US rates is emerging market debt.

There are better prospects for short-dated Australian bonds, given that the central bank there is still busy cutting rates. “By cutting back the duration for short-dated US paper and overweighting Australian bonds, we have ensured that Rorento is as well-positioned as it can be to cope with any negative effects of rising rates in the US”, summarizes Van Trigt.

Adrien Pichoud Appointed New Chief Economist at SYZ Asset Management

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Adrien Pichoud, nuevo economista jefe de SYZ Asset Management
CC-BY-SA-2.0, Flickr. Adrien Pichoud Appointed New Chief Economist at SYZ Asset Management

SYZ Asset Management has announced the appointment of Adrien Pichoud as Chief Economist. Adrien Pichoud is also a member of the Strategy Committee, which defines the Group’s investment policy. Under the direction of Fabrizio Quirighetti, Chief Investment Officer of SYZ Asset Management, Adrien Pichoud also assumes the function of co-manager of the OYSTER European Fixed Income and OYSTER USD Bonds funds.

Adrien Pichoud joined the SYZ Group in 2010 as an economist. Prior to that, he spent seven years as an economist in a brokerage firm in Paris. He holds a master’s degree in finance from the University of Grenoble (France) and a BA in Economics from the University of Sussex (UK). Adrien Pichoud is a well-known commentator in the Swiss investment media to which he frequently contributes.

“Adrien Pichoud’s skills as an economist greatly contribute to the quality of our investment strategy and the performance of our bond and multi-asset funds. This promotion demonstrates a strong internal progression confirmed by results,” commented Katia Coudray, CEO of SYZ Asset Management.

In addition, Adrien Pichoud is a member of the management team of the OYSTER Multi-Asset Absolute Return EUR and OYSTER Absolute Return GBP funds as well as other multi-asset funds and institutional mandates in absolute return strategies.

Great Britain and the Franco-German Axis make up the Bulk of European Equity Strategy at Investec

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Gran Bretaña y el eje franco-alemán componen el grueso de la estrategia de renta variable europea de Investec
Ken Hsia, Manager of European Equity Strategy at Investec. Great Britain and the Franco-German Axis make up the Bulk of European Equity Strategy at Investec

Ken Hsia, manager of European Equity Strategy at Investec recently visited Miami. His strategy invests in companies listed on the European stock exchanges, including the UK, as well as in those that, while trading in other markets, carry out most of their operations on the continent.

It is precisely the British market which Hsia mostly favors, concentrating more than one third of the positions of the strategy which he manages. France, Switzerland, Germany, and Norway, complete the group of the five markets which he perceives most positive, whilst Spain is in sixth position. This strategy has a class which hedges all currencies in the portfolio – not only the Euro – ,ensuring a real exposure to the behavior of the underlying companies.

“Overall, there have been very few changes since November, but there has been a recovery of corporate earnings, often due to a reduction in costs through corporate reforms,” says the manager. “In the past nine months, both the Euro, in respect to the dollar, as well as oil prices, since June, have weakened, favoring a continent which, on the one hand, is almost twice as sensitive as the United States to exports, because much of its production is exported all over the world, and, on the other hand, is a net consumer of oil, which, with the low prices, the value is transferred from the producers to the consumers. Eight of the 10 Star ideas have exposure to Europe, “he says.

Hsia supports his positive view of the consumer, industrial, and technological sectors stating that “money is in the hands of consumers.” According to him, the relative value of European markets to the United States is unbalanced downward. “The European stock market is still down and there is a 45% gap between the European and US stock markets, which has to close,” he adds. “Indeed, my job is to find companies that have less than 10x EPS, with further growth in profits,” he says.

The average tenure of companies in the portfolio is two years, “despite market speculation, I have not had to change my portfolio more than normally,” says Hsia. It is an actively managed fund which concentrates its positions on three ideas: global winners, the assets with European exposure but which benefit from reduced competition, and a third group in sectors which are in question, but which are beginning to turnaround.

Among the first, which from about a year ago, account for between 50% and 60% of the portfolio, are Bayer, Novartis or Teleperfomance. The weight of shares of companies in the second group, TUI, DS Smith or Dixons Carphone, is growing as a result of improved profits, which are based on achieving better contracts due to reduced competition. A couple of examples: in TUI’s case, it’s margin has risen from 4% to 6% by negotiating major global contracts, and benefits are expected to grow in the coming years, resulting in a positive impact on the distribution of dividends; and with regard to Dixons Carphone, it will clearly benefit from the disappearance of its biggest competitor because the private equity which bought it out loaded it with debt.

The third group, the one in sectors in question, is composed of companies which, within the telecom and utilities sectors, for example, are expected to perform better than their competitors, and in the future become part of one of the other two groups. This could be the case withEndesa, which will benefit from the sale of its Latin American operations, with greater exposure to the Spanish recovery and therefore higher dividends predicted.

By sector, the manager is positive in discretionary consumer and technology (software and hardware) and negative in utilities and energy, as the fall in energy prices will decrease the sector’s corporate profits, and especially in banks, due to the efficiency problems they suffer. “There are not many cheap banks according to their results. In the UK, banks which are too-big-to-fail are being penalized. It currently makes no sense to have large banks,” although he admits havingKBC (Belgium) and ING (Netherlands).

 

BBVA is Now the Leading Shareholder in Turkey’s Garanti Bank

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BBVA se convierte en el primer accionista del banco turco Garanti tras comprar un 14,89% adicional
CC-BY-SA-2.0, FlickrBBVA chairman, Francisco González . BBVA is Now the Leading Shareholder in Turkey's Garanti Bank

Spanish bank BBVA is now the leading shareholder in Garanti, Turkey’s largest bank in terms of market capitalization. After completing the transaction announced last November to acquire an additional 14.89% holding, the BBVA Group now owns to 39.90% of Garanti. Francisco González is in Istanbul due to the closing of the transaction and the appointment of the new Garanti CEO.

The total price paid by BBVA of the 14.89% stake amounts to 8.765 Turkish liras per share, amounting to approximately 5.481 billion Turkish liras (€1.854 billion). The sellers have already received the dividend disclosed by Garanti Bank on April 9, 2015 amounting to 0.135 Turkish liras per share. Therefore, as disclosed to the markets on November 19th, 2014, the total consideration received by the sellers amounts to 8.90 Turkish liras per share.

BBVA chairman Francisco González said, “This is an important day in BBVA’s history. After four years of excellent relations between the partners BBVA has become the leading shareholder in Garanti, Turkey’s best bank.”

“During our collaboration, we have closely witnessed the enthusiasm of a world banking giant like BBVA for Garanti , as well as its trust in our values, our corporate culture and our team who is passionately committed to its work,” added Ferit Sahenk, chairman of Garanti and the Dogus Group. This operation confirms the excellent relationship between the partners as well as the commitment of Dogus, which is one of the main Turkish business groups and the founder of Garanti. Dogus will retain the chairmanship of Garanti’s board of directors and still owns a 10 percent stake in Garanti.

Francisco González is in Istanbul due to the closing of the transaction and the appointment of the new Garanti CEO, Fuat Erbil. His appointment, which was ratified today by Garanti’s board, confirms the continuity of the company’s management and support for local talent. Until now Mr. Erbil was part of Garanti’s management team.

The new CEO is one of the seven directors to be appointed by BBVA in a board of ten members. Dogus remains as a shareholder and a principal partner – as established in last November’s agreement. Ergun Özen, chief executive officer until now, will continue as board director. The change of chief executive officer will be effective from September.  

Closing of the operation

In accordance with the applicable accounting rules and as a consequence of the agreements reached, the BBVA Group shall measure at fair value its previously acquired stake in Garanti Bank (which amounts to 25.01% of its share capital). Such accounting impact does not translate into any additional cash outflow from BBVA. It will result in a one-off negative impact on the net attributable profit of the BBVA Group in the third quarter of 2015 of about €1.8 billion. Most of this impact is generated by the exchange rate differences due to the depreciation of the Turkish lira against the euro since the initial acquisition by BBVA of the 25.01% stake in Garanti Bank in 2011. These exchange rate differences are already registered as Other Comprehensive Income, deducting the stock shareholder’s equity of the BBVA Group.

In terms of capital, the acquisition will mean an estimated reduction of approximately 50 basis points in the Common Equity Tier 1 (fully loaded) ratio.

From here on BBVA will fully consolidate Garanti Bank in the financial statements of the Group. So far it has accounted for this business using the equity method.

Garanti is the top bank in Turkey by market capitalization (€11.1 billion) with about $100.9 billion in assets at the end of March. With consolidated data, it serves more than 13 million customers through an extensive retail network of more than 1,100 branches and over 4,400 ATMs. It is the top institution among private banks in Turkey in terms of mortgages, consumer finance, vehicle finance and credit card customers. Staff number over 22,700.

Leadership in technology is part of Garanti’s competitive edge. Its investment in technology, in-house developments, personalized customer solutions and the management’s driving emphasis on innovation have made it a pioneer in digital banking. At Garanti 91% of transactions are handled through digital channels. Garanti is the Turkish leader in mobile banking with a 30% market share and it holds a solid position in online banking with a 23% market share by volume of transactions.

Turkey’s population is more than 75 million and over half are less than 30 years old. BBVA Research puts the average annual growth of Turkey’s GDP at 4% for 2014-2024.

Shopping for Bargains in Russian Retailers

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Ideas para aprovechar la renta variable rusa
. Shopping for Bargains in Russian Retailers

Russian equities are among the cheapest in the world amid political and economic controversy. Yet investors might be surprised to discover that the rapidly developing retail industry offers undervalued opportunities with attractive return potential, said AB experts.

Russian equities are trading at an average P/E ratio of 6.5x versus the emerging-market average of 12.5x. There are good reasons for the discount: Russia’s economy is under severe pressure because of a weaker oil price and international sanctions as a result of its role in the conflict in Ukraine. The ruble has plunged versus the US dollar, inflation has shot up and Russia’s GDP is shrinking. Ordinary Russians are feeling the pinch in the form of declining real incomes.

“So, even the most contrarian investor needs to tread very cautiously before venturing into Russian stocks. That said, we believe selected large Russian food retailers represent a compelling structural opportunity for investors given the long-term modernization and consolidation of the country’s food retail industry”, points out Henry S. D’Auria, Chief Investment Officer, Emerging Markets Value Equities at AB, and Justin Moreau, research associate in the team.

Room to Grow?

In size terms, the industry is potentially massive; Russia’s population is as large as Germany and France combined. However, modern supermarkets remain relatively few and far between and the industry is still highly fragmented. The biggest retail chains have been expanding rapidly. Together, they’ve rolled out more than 2,000 new stores in each of the last five years. But they still have lots of room to grow and to win greater market share.

This growth potential doesn’t seem to be priced into the big Russian food retailers’ valuations, which look cheap compared with many of their emerging-market peers, opine both AB experts.

 

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This is particularly surprising since they’re highly profitable. In other countries, intense competitive pressures have resulted in price wars, driving down industry-wide profitability. In Russia, these pressures are kept in check because the country’s vast geography and harsh climate represent significant logistical barriers to entry. Western food retailers have largely decided to stay away. The challenging business environment, economic sanctions and their unfamiliarity with the local market have persuaded them not to target Russia.

Riding out a Spending Squeeze

“Clearly, declining wages and soaring prices could curb Russian spending on food. Retailers are also pressured by government food import restrictions. Imports of fruit, vegetables, meat, fish and dairy products are banned from countries that imposed sanctions in protest at Russia’s role in Ukraine. The resulting shortages are making some items still more expensive. In this challenging environment, we think the big players are much better positioned to thrive than smaller chains and stand-alone stores” said D’Auria and Moreau.

The biggest modern chains are relatively young companies, having emerged in the 1990s and become publicly listed in the last 10 years. But they’ve fast gained the size and reach that we regard as key ingredients for success in today’s food retailing market.

Russia’s economic woes have driven down both labor and real estate costs—the big players’ two largest operating expenses. This should make it cheaper for them to open more stores in future—providing yet another boost to their consolidation prospects.

“Russia isn’t an obvious investment target in these difficult times. But because many investors are steering clear of the region, it’s an opportune moment to take a strategic look at the market.  In our view, the retail sector is a good place for investors to shop for bargains that should benefit from structural change during current economic and political uncertainties, as well as—in the long run—when the conflict is ultimately resolved”.