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Russia: the most divided market on earth
on Jun 02, 2014 at 11:33
The investment community is divided by Russia perhaps more than any market on earth.
There are true believers, who have fundamentally concluded the nation is emerging as a consumer society with every advantage of natural resources.
They see the valuations as absurdly cheap. They also offer a polemic for interpreting Russia’s place on the world stage which - whilst totally different to the conventional Western narrative - can prove surprisingly persuasive.
Yet these individuals are a minority. For most Russia remains a nation racked with corruption, with an equity market bound to the oil price and a leadership capable of extraordinarily unpredictable behaviour.
The situation in the Ukraine has only put this into starker contrast.
Those fund managers who are required to hold Russia - such as the Jupiter Emerging European Opportunities fund - have taken holdings to low levels, allocating more than half of the fund to those European countries least exposed to Russia – such as Turkey.
Other firms with Russian exposure have simply opted to keep their heads down. Russian equity fund managers face the uneasy challenge that if they defend their market it can be interpreted as a defence of Vladimir Putin’s actions in the Ukraine.
The challenge though is that Russian equity managers have also waited a long time to attract assets from Western investors and it is painful to watch the current rally take place without being able to talk about it.
The rally after all is unlikely to continue indefinitely. As John Higgins, the chief markets economist at Capital Economics says: ‘Over the past month, the stock market has performed better in Russia than in any other country including the MSCI Emerging Markets Index, as tensions in Ukraine have eased.
‘But the near 15% rally has not wiped out all of this year’s losses and we suspect that further upside will be limited.’