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Investors are missing extraordinary investment opportunities because they hold outdated views of Russia, East Capital asset managers argue.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.

Debunking myths

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.

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