This manager sees opportunities in Eastern Europe, even in Russia and Ukraine
Russia’s invasion of Ukraine has shaken investor confidence in Eastern Europe. Now, some investors have started to wonder if stocks in the region have plunged enough to become attractive again.
Dave Iben, chief investment officer at $6 billion manager Kopernik Global Investors, said II that the company is actively exploring opportunities in Eastern Europe, including Russia and Ukraine. He said that because many countries in the region are rich in commodities, they present very attractive opportunities in an inflationary environment. Kopernik’s investment team is currently visiting companies in the region to update their research.
“Inflationary monetary policy eventually migrates to commodities,” Iben said. In the eight inflationary regimes since World War II, commodities as a whole have generated an annualized real return of 14%, according to a paper 2021 by five academics affiliated with the Man group. Real assets, in general, should protect investors better than traditional stock and bond portfolios.
Iben said Kopernik is currently looking at Eastern European stocks in commodity-related industries such as mining, agriculture, utilities and industrials. Some of these stocks are extremely undervalued due to the Russian-Ukrainian conflict. For example, Ukrainian agricultural and industrial company Astarta’s price-to-earnings ratio is just 1. Its enterprise value per acre of farmland, meanwhile, is $214, compared to Gladstone Land’s $19,326. and $13,852 for Iowa Farmland, two US farmlands. companies, according to data from Kopernik.
Poland is another Eastern European country that has attracted investor interest. Brandon Pizzurro, director of public investments at $20 billion GuideStone Capital, said his team is overweight Polish stocks, especially those in the consumer landscape. “It is one of the countries which, simply because of its proximity and [concerns about a] overflow effect [from the Ukraine war]people really sold out,” he said II in an interview. He added that many investors fear that the peripheral countries at the center of the war will be economically weakened.
Unlike the many investors who divested from Russia in response to its invasion of Ukraine, Iben and his Kopernik team did not shun Russian assets. The company has invested in Russian energy company Gazprom, hydroelectric company RusHydro, property developers LSR and Etalon and financial services company Sberbank. In early April, RusHydro and Gazprom were trading at only 50% and 60% of book value, respectively, according to Kopernik data.
In a webinar in April, Alissa Corcoran, analyst and research director at Kopernik, explained the distinction the company makes between investing in Russian companies and supporting the Russian government. “When we buy Russian companies, we distinguish between investing in the Russian government and investing in the people, the culture, the assets, the franchises of Russia,” she said, adding that selling shares of Russian companies in the secondary market don’t necessarily hurt the Russian government.
Iben added that he thinks the real risks for investors are risks that “people don’t worry about”. In that sense, Russian assets and many Eastern European stocks have lower risks than some of those in US markets. “Once [investors] worry about the risk, they assess it by [and the asset] becomes less risky,” he said. “If you can buy things at too low a price, [the risk is] actually lower.
“Do we want to invest in these places? Of course, that’s where the value is. But are we a little afraid of these places? Yes, because they are notorious for their corruption,” he added. “Therefore, we try to [only invest] in good companies, and with excessive discounts.