The Russian Eagle. September 2019 - The Highest Yields and the Best Performance

Russia remains the best performing equity market this year. The RTS's total return is 36%. But even after the rally, Russia's aggregate dividend yield of 6.7% is near a historic high and more than 2 pp above the next highest yielding market. Equities also look attractive compared with local and FX-denominated debt. Such a high yield usually implies market participants consider the payouts unsustainable - in this report, we argue that is not the case here. Moreover, we note that the ongoing turn to a more neutral macroeconomic policy has not been priced in by equity investors. All that said, with Russia already the second largest overweight in GEMs, we would expect higher valuations only to come with expanded demand - from global funds, total return funds or local investors. Looking ahead, we expect dividend yield compression to be a major theme and strategically prefer dividend plays that also have strong fundamental stories.