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Russia: the most divided market on earth

on Jun 02, 2014 at 11:33

It is hard to interpret this rally as anything other than a rebound from the Ukraine situation, after all Russian growth has been slowing for some time.

Yet when you have held out as an investor in Russia for the long-term any rally would be worth talking about.

In the short-term it remains a significant problem for Russia that it cannot seem to win the approval of Western investors – and for Russian business leaders a frustration that Putin is so willing to sacrifice short to medium-term commercial advantage to make his point.

Yet this is a country which as an investor you cannot fully turn your back on.

After all in the midst of the negative news flow around the Ukraine, and the stockmarket volatility that accompanied it, we see a deal being struck by Gazprom and China National Petroleum.

The significance of this sort of deal is lost in the daily newsflow. And yet it is surely crucially important that this country has the capacity to grow its vital strategic ties with China in the midst of the international crisis.

The conclusion perhaps is that Russia may rally somewhat yet if the Ukraine situation calms down, Western fund managers will probably not want to tell their own investors to capture it and will therefore remain isolated in the investment community as fans of the Great Bear. Meanwhile, Russia will carry on building strategically vital partnerships with China.

One day that will produce great riches for somebody, yet it is unlikely to be European investors.

For us it is simply too messy, too contradictory. The short-term noise will be loud enough to drown out the vast structural changes Russia is rendering upon the world economic map.

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