Investors still blind to Russia potential
Investors are missing extraordinary investment opportunities because they hold outdated views of Russia, East Capital asset managers argue.
It is another revolution, but investors have yet to acknowledge Russia’s vastly improved economic fundamentals, growing political stability following presidential elections, valuations last seen in the 1990s, and a new determination to tackle corruption and inefficiency across public and private sectors.
Peter Elam Håkansson, East Capital’s chairman and founding partner, says European investors in particular remain mired in their own financial crisis and are finding it difficult to lift their eyes to opportunities on their doorstep.
Aivaras Abromavicius, adviser and member of the portfolio management team, recounted how one US institutional investor admitted they could not move beyond their deep “historical suspicion” of Russia, despite evidence of robust economic fundamentals and outlook.
Anders Åslund, a senior fellow at the Washington-based Peterson Institute for Economics and an adviser to the company board, says: “Russia’s economy is in excellent shape.
“GDP growth at 4% per annum, a budget surplus of 0.8% of GDP, a current account surplus of $10bn, inflation at 4% annualised, unemployment at 6%, foreign reserves at $500bn (the third largest in the world) – there are no concerns on the macroeconomic front at all.”
Yet international investors persist in marking down Russia and attaching a risk premium they do not demand from other emerging markets. Marcus Svedberg, chief economist for East Capital (pictured), which has $5.5bn assets under management, says the perception is annoying, unfair, and “difficult to explain from a financial point of view”.
Critics cite two main reasons for caution: Russia’s dependency on a high oil price, and political stability.
The latter has certainly been a factor, but the March presidential election, which saw Vladimir Putin back in office for another six years, marked a watershed in Russia’s political evolution.