Russia Tops Taiwain on Bank's Index

NEW YORK -- Russia overtook Taiwan as the top emerging market in Morgan Stanley's model portfolio on prospects that rising oil prices and domestic economic growth will propel earnings for companies such as Gazprom.

Morgan Stanley increased Russia's "overweight" position relative to the makeup of the MSCI Emerging Markets Index by 50 basis points and reduced Taiwan's by 75 basis points, in a report by analysts including London-based Jonathan Garner. Russian stocks are inexpensive and political risk has declined, they wrote.

"We think Russia will remain well insulated from the current global growth slowdown and domestic demand should remain strong," the analysts said in the report. The securities firm raised its forecast for 2008 growth in Russia's gross domestic product to 6.7 percent from 6 percent in February.

Prices for Brent crude oil have increased 75 percent over the last 12 months while Russian oil stocks have gained 16 just percent, according to the note, dated Thursday. Another three months of $100-per-barrel oil and favorable natural gas prices would add 13 percent to earnings for Russian producers, for a 45 to 50 percent increase in profits over last year, Morgan Stanley said.

Russian equities trade at a 17 percent discount to the MSCI Emerging Markets Index in terms of price to estimated earnings, Morgan Stanley said.

American Depositary Receipts of Gazprom, the country's largest energy company, fell 35 cents to $51.90 in New York Stock Exchange composite trading. The ADRs have lost 7.8 percent this year.

Magnitogorsk Iron & Steel Works, the country's third-biggest steelmaker, fell 4 cents to $16.61, on the London International Exchange. Both companies are on Morgan's emerging market "focus list."

The analysts said they were "taking some profits" on Taiwan stocks after they outperformed the emerging market benchmark by 16 percent year to date. Taiwan fell to third place in Morgan Stanley's ranking, following Russia and Malaysia.

The securities company increased its "overweight" position on Turkey's market by 25 basis points.