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. Last Updated: 07/27/2016

Deutsche Bank Lifts Russian Stocks Grade

Investors should buy Russian stocks because the country's energy shares have become a good value, and consumer spending is growing at the fastest pace in the developing world, Deutsche Bank said.

Germany's largest bank raised its recommendation on Russian shares to "overweight" from "neutral." The benchmark RTS Index will probably reach 2300 by the end of the year, a 27 percent gain from Monday's close, Deutsche Bank said.

"This is an extremely strong domestic growth story," said Kingsmill Bond, 39, head of emerging-market equity strategy at Deutsche Bank in London. Bond's team ranked first for equity strategy in emerging Europe, the Middle East and Africa for a second straight year in Institutional Investor magazine's survey.

Deutsche Bank's stock picks include CTC Media, which controls Russia's fourth-biggest television network by market share, and Mobile TeleSystems, the country's largest mobile phone company.

Russian stocks fared worse than other developing markets during a five-day global sell-off starting Feb. 27. The RTS is now down 5.6 percent for the year, while Morgan Stanley Capital International's Emerging Markets Index has lost 2 percent.

Private consumption in Russia is currently increasing 13 percent per year, exceeding the 7.5 percent growth in India, the next-best among major emerging markets, Bond said.

About half of the RTS is made up of oil and gas companies. LUKoil, Russia's biggest oil producer, and Gazprom, the world's largest natural gas producer, now look more reasonably priced when compared with their peers in emerging markets, Bond's team wrote in a research note dated Monday. Analysts at Deutsche Bank expect crude oil prices to remain around $60 per barrel, the report said. Deutsche Bank had a neutral recommendation on Russia for about six months because it considered the energy shares to be expensive, the strategist said.

"After deflating for about a year, the oil and gas sector is now reasonably priced," Bond said.