Shares in VTB, the country’s second-largest lender, spiked 14 percent in London and Moscow trade Wednesday, narrowing a valuation gap with Sberbank.
Analysts said VTB had been undervalued versus Sberbank, Russia’s largest bank, for too long and that VTB had a greater potential for growth.
“VTB is now chasing Sberbank. It lagged for a long time and clients were not holding much. Now investors are jumping into the shares en masse,” said Timur Nasardinov, Troika Dialog’s head of trading.
VTB shares closed up 13 percent to 5.56 kopeks Wednesday, exceeding the 4.82 kopeks per share paid by the state in a rights issue that closed last week. The benchmark RTS index was up 1.84 percent and Sberbank rose 0.8 percent.
“Sberbank is still on top of the world, but when it gets too expensive people have to find alternatives,” said Nikolai Kiryushkin, a trader at Metropol.
At the end of August, a major investor easily sold off $140 million worth of Sberbank shares as Frankfurt listed Global Depositary Receipts, offering proof of investor appetite for the successor to the Soviet state savings bank.
That interest launched a rally that lifted the shares by 31 percent since the Aug. 31 placement and helped cement Sberbank’s new role as the country’s top blue chip, which analysts and investors see as a proxy for the Russian market.
Since then, it has outperformed the RTS by 16.5 percent.
As of Tuesday, it had outperformed VTB by about 13 percent, but VTB’s gain Wednesday closed the gap to just 2 percent.
“We think that Sberbank is overbought and see little upside for its shares at current valuations,” Unicredit said in a note to clients Wednesday.
“However, we believe VTB — which trades at a 37 percent discount to its precrisis level on expected current year price to book value — should outperform Sberbank over the short run, regardless of the market direction.”
Based on Tuesday data, Unicredit put Sberbank at a price-to-book ratio of 1.9 times and VTB at 1.2 times.
VTB and Sberbank had been a popular spread trade on Russia’s stock market, with investors building up long positions in Sberbank, whose business is steadied by a vast deposit base, and selling short riskier VTB.
Traders said that the pair could easily reverse. VTB, more heavily leveraged and relatively exposed to commodity-heavy Russian industry, would likely outperform the market in a sustained economic recovery.
Deputy Prime Minister Igor Shuvalov told parliament on Wednesday that the country’s economy had past the worst of its steep downturn.
Finance Minister Alexei Kudrin told parliament also on Wednesday that the country could expect sequential growth of 1.5 percent in the third quarter and 2.4 percent in the fourth.
The banks have outperformed as evidence has mounted that Russia is bouncing out of its first recession in a decade.
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