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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.

 

A 'modern' Russia?

Russia’s crumbling road and airport network is a big problem – and deterrent – for some investors. There have long been calls for more efficient public expenditure, which would allow Russia to modernise, crucially upgrading its infrastructure much like other growth markets like China and India are already doing.

Other long held challenges include improving the investment climate for businesses; even Medvedev, who continues to promise reforms ahead of a presidential election next year in which either he or prime minister Vladimir Putin (not both) will run, admits this is still ‘very bad’.

‘The reform process has really reversed under Putin,’ comments Poole. 'Russia has gone back to a state-controlled form of capitalism’.

Unfavourable demographics and corruption – which the World Bank this week said remains a ‘huge problem’ – are additional stumbling blocks. Broadly the challenge is to sustain reforms while avoiding the ‘oil curse’. Then shake off energy dependence altogether.

More immediately, say analysts, Russia must get inflation (which rose to 9.6% in May) under control. Food and fuel price rises have overshadowed a recovery in household consumption, and a gradual economic recovery: last year Russia managed GDP growth of 4%, while growth of 4.4% is expected this year.

Those who see Russia purely as a commodity play though, are unmoved by most of these oft-cited risks and the tired debate over reforms.

‘You can talk about it for hours, but if the oil price comes down then Russia won’t perform well’, says Maarten-Jan Bakkum, emerging markets strategist at ING Investment Management. He adds that Russia is cheap compared to other emerging markets, but again ‘if the oil price works against you it doesn’t matter how expensive or cheap the market is’.

Bakkum's argument works both ways and he is bullish on Russia: ongoing turmoil in the Middle East and demand from other emerging markets will keep energy prices high, he reckons.

Citywire Selection

For a pure Russia play Citywire likes the Neptune Russia & Greater Russia fund managed by Robin Geffen. Some of the funds in the global emerging markets section of our Best Investment Funds page will also invest a portion of their funds. For example, another fund we like which invests heavily in Russia is JPM New Europe , managed by Oleg Biryulyov and Sonal Pandit.

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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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