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Russia: energetic investors say it's time to buy

Forget the reform debate and Soviet-era infrastructure: this is a 'pure commodity play' say the bulls.

Russia: energetic investors say it's time to buy

Forget the reform debate and Soviet-era infrastructure: this is a 'pure commodity play' say the bulls.

A one dollar rise in the oil price nets Russia an extra $2 billion in budget revenues. And vice versa.

The country’s economy waxes and wanes in synch with the volatile oil price – its vulnerability to oil price falls was never clearer than during the global financial crisis.

But now, when oil prices are high, is theoretically a time of plenty for the world’s largest energy exporter.

For investors a decision on whether to invest in Russia depends on whether you expect the price of oil to remain in the stratosphere.

Philip Poole, global head of macro and investment strategy at HSBC Global Asset Management, thinks it will. He says now is a good moment to buy in Russia, where the stock market, though up since the start of the year, is off April highs thanks to a stream of downbeat economic data around the world that has seen investors seek less volatile places to put their money.

Pure commodity play

‘This is a good entry point into this market – I believe the oil price will only go higher from here,’ says Poole, who thinks that Chinese appetite for energy now provides a floor for the price of commodities such as oil. ‘Valuations in the Russian energy sector look very attractive relative to their peer group and their own trading history,' he adds.

Poole is clear that Russia is a ‘pure commodity play’.

Not everyone is so keen. Investors have been pulling their money from Russian equity funds for the four straight weeks now, according to data provider EPFR – ‘money is running away from our economy’ president Medvedev points out – partly due to a downturn in the still-high oil price and partly because of investors’ broad aversion to risk.

Some investors say it is just too risky to invest in the country. Ahead of the launch of the Artemis Global Select fund, manager Simon Edelsten said, ‘I don’t invest in Russia because governance is not great and I believe holding stocks there is too risky for a global portfolio’.

Even if oil prices continue to rise, say some investors, you may not profit. ‘What we found over the years is that Russian oil companies tend to correlate with the oil price for much of the time, but not when the oil price is very high. What happens then is investors get worried about implications for global growth, and risk aversion kicks in. As Russia is perceived as a risky asset, it gets sold,’ Jupiter’s Elena Shaftan explains.

Though Shaftan believes the easy money has been made from the soaring oil price, she thinks there are more attractive opportunities among Russian infrastructure and consumer stocks.

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4 comments so far. Why not have your say?

William Bishop

Jun 08, 2011 at 16:59

If you want to invest in an autocratically-run country with no reliable legal system, the best of luck. I would not touch with a bargepole.

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Anonymous 1 needed this 'off the record'

Jun 08, 2011 at 17:47

When I select funds, e.g. emerging market ones, I always look for little or no presence in Russia. They can't be trusted. Look at the long list of veiled criminal interference thay continue to conduct. Russia is about the least transparent country ever. And the journalists and people out of favour who are found dead. Abou11 years ago I attended a Microsoft "Government Leaders " conference and heard the head of Europol speak, he said that the UK, France, Germany each had about 30 to 40 large criminal networks, Italy about 50, Russia about 1,500. I cannot invest there.

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Jeremy Bosk

Jun 08, 2011 at 22:10

I have done quite well out of Raven Russia both ordinary and preference shares.

After the way British governments have destroyed investment in North Sea Oil with random tax changes, destroyed the private nursing home sector with lax regulation, wrecked the NHS with misbegotten financing and other lunacies... Why single out Russia for blame? Thieves, confidence tricksters and gangsters misgovern most of the planet.

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Geoff Evans

Jun 11, 2011 at 10:18

Did Aonymous 1 include the British Government and Parliament among the Criminal Gangs in the U K

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