The Moscow Stock Exchange (MOEX) has historically shown a propensity to fluctuate heavily while under pressure. Whether sanctions, inflation, or politics is concerned – the exchange and its traded assets tend to be very sensitive. Following the announcement of a new wave of sanctions against Russian oligarchs and companies on April 9th, 2018, the MOEX index fell as much as 9.1%.
A volatile emerging market in a country where politics closely governs wealth, caught in the middle of political tensions is not necessarily the most desired investment condition. Additionally, the Russian market has been notorious for attracting foreign investment backed by low valuations – only to catch investors in a cyclical trap, or as one researcher called it: “plastic food on a picnic blanket in quicksand.”
Unfortunately, as with many emerging markets, there exists a technological lag between the West and the East. Although it may not be as noticeable in big cities such as Moscow and St. Petersburg – there is a delay in in how fast certain technology, goods, and services, become mainstream in Russia. As new technology is developed and marketed in the West – few people in Russia are aware of its existence unless it is popularized through social media or brought to the Russian market by resellers or franchised businesses. Once the product or service is introduced to the Russian market an unofficial trial begins, where sales, usability, and product pipeline sustainability are monitored with demand, and compared to market reactions in the West. It is not uncommon for a product to make its way to the Russian market and gain popularity while losing it in the US. Investors looking at value plays must be certain that a western company’s goods or services are replicable within the Russian market.
Once imported product demand has been established the local market opens up to finding a sustainable domestic solution that will bite into the newly established market. Identifying western companies that have a potential to expand east is valuable, however identifying domestic companies that could satisfy a demand generated by a western product is even better.
The Case for Yandex
Many Russian users remember finding out about Yandex (NASDAQ: $YNDX) from advertisements, automatic downloads, and programs that would change your default search engine in a move that could be considered today adware. Regardless, Russians browsing Google and stumbling across the Russian search engine provider stuck to it. What stood out to users was the reliability and attention to detail when it came to the Russian market. Yandex includes a total of 25 services all tailored for the Russian and ex-USSR market.
Yandex changed the way that many Russians used the internet by making it simpler and, frankly, less Western. Drivers would no longer purchased American made GPS units (which used to be the best on the market), they purchased Yandex navigators – essentially Android based tablets running Yandex Maps – which showed you real-time traffic, too.
Yandex Money revolutionized payment processing and made it safer for consumers and merchants to conduct online transactions. The service is partnered with Sberbank and allows consumers to use an electronic wallet, make transactions to other wallets, and withdraw the funds from Sberbank ATMs.
When using Uber became a mainstream form of transportation Yandex responded by creating Yandex Taxi – it’s own ride-hailing program.
Last year Yandex also launched Alisa, a virtual AI assistant with the world’s best Russian speech recognition technology. The platform is set to expand to rival the services of Amazon’s Alexa.
While Google still has an immense presence in Russia, but Yandex’s market share as an internet-search provider currently exceeds 55% and is rising. Additionally, Yandex’s CEO, Arkady Volozh, is not being targeted by US sanctions against Russia. It is also unlikely that sanctions will affect the business much – while it has affected the stock price.
Since its 2011 IPO Yandex has displayed volatility characteristic to cyclical stocks. Earlier this year the stock price reached a heavy level of resistance before being offloaded by panic sellers. 2018Q1 earnings – 26/04/2018 – will act as a catalyst in determining whether this stock will repeat it’s cyclical price action, or go on to maintain its 2017 bullish momentum. As for now, this company has a major value, but the environment may stifle the company’s growth and make it less rewarding than it should be for investors.