Russian equities shut at their highest level on record as rebounding oil prices seduced investors to the cheapest stocks in emerging markets.

The benchmark gauge in the worlds biggest energy exporter rose 0.5 percent to 1,977.28 in Moscow, its third day of gains. Lukoil PJSC and Rosneft PJSC, the countrys largest petroleum producers, were among the biggest advancers on the 50 -stock index as Brent crude climbed for a third day, defined for the best price since July 12.

Even after a rebound in crude prices this year, the Micex Index lags its peers and has the lowest price-to-estimated earnings ratio among countries included in the MSCI Emerging Markets Index. That appeals to investors trying profits in riskier, higher-yielding assets as central bank maintain rates near zero or below.

Oil is heading for $50 and investors are piling into emerging markets, creating a boon for Russian stocks, told Vadim Bit-Avragim, a fund manager at Kapital Asset Management in Moscow, who said he plans to hold on to his Russian equity investments until at least October. The Russian marketplace may seem expensive relative to history. But compared to other emerging markets, its still cheap and could rise higher.

Dividend Payments

Extra support is coming from companies July dividend payments, which investors are funneling back into new shares, Bit-Avragim told. The Micexs 12 percent gain this year compares with a 15 percent advance for the MSCI Emerging Markets Index, while the Micexs price-to-book ratio is at the highest level since 2012.

Russia relies on oil and natural gas marketings for about a third of its budget revenue. Crude futures jumped last week as Saudi Arabia signaled its prepared to discuss stabilizing markets at informal OPEC debates next month.

Inflows into Russian stocks nearly doubled to $65 million in the week through Aug. 10, according to Sberbank CIB. That helped offset supposition last week that the situation in Ukraine could worsen after President Vladimir Putin threatened to respond to terror tactics in Crimea.

The ruble added 1.1 percent to 64.01 against the dollar at 12:59 p.m. in New York, widening its advance this year to 15 percent. Brent crude rose 2.5 percent to $48.14 after posting the biggest weekly increase since April.

Stock Valuations

Russian assets decoupled from the rally in petroleum late last week as a flare-up in the Black-Sea peninsula Putin annexed in 2014 rekindled geopolitical concern and drove up the costs of insuring Russian debt against default. Investors waiting to see whether existing conflicts would escalate were encouraged Monday as Foreign Minister Sergei Lavrov said the nation will use its influence with pro-Russian separatists in eastern Ukraine to reduce tensions.

The Micex Index trades at 6.7 periods projected earnings, compared with a multiple of 12. 7 periods for the MSCI Emerging Markets Index.

There is not too much upside for Russian stocks from current levels, but I dont watch a big downside danger, Sergey Vakhrameev, a portfolio manager at GL Asset Management who likes Novatek OJSC and Magnit PJSC, said by phone from Zurich. Russian equities are still the cheapest among their peers in emerging markets.

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