Russia is a stable investment option, says Ashmore’s Jerome Booth
Investors continue to be sceptical about Russia, citing political instability, dependence on oil prices and lack of corporate governance as reasons not to invest in the country. But Jerome Booth, head of research at Ashmore Investment Management, argues that Russia is in fact a stable and safe investment option compared to some other emerging markets and the developed world.
“The political scene is stable and it will be difficult to see oil prices fall much lower than their current level, unless there is a depression in the EU and the US, but even then Russia will be much safer. Most of Asia is an oil importer, so there will still be demand for Russian oil,” he explains.
Macroeconomic risks in Russia are much lower than in developed European countries, where economies are highly leveraged and are suffering from contagion risk from countries affected by the crisis. “Leverage and misperception of risk is what matters—risk-free simply means that risk isn’t priced in,” Booth says.
Even the stronger European states, such as Germany, Luxembourg and the Netherlands are suffering from contagion. Earlier this week rating agency Moody’s Investors Services lowered its outlook on this top-rated trio to negative, sparking a wave of anger from Berlin. The move was fuelled by fears that the stronger nations will have to offer further support to Spain and Italy as the situation in the periphery deteriorates.
Russia, however, does not have to carry the burden of potentially defaulting states. Apart from this, it is a “massive net creditor,” with substantial foreign exchange reserves. This allows the country to maintain the stability of the rouble and protect it from external shocks.
It is not alone in this favourable position—Booth said there are a good 20 countries that follow the same pattern. Algeria, for example, has around $150bn in foreign exchange reserves, twice that of the US. He pointed also to Brazil, India and Indonesia as good example of the same situation.
Not only does Booth see Russia as relatively stable, he also anticipates above average returns, which, coupled with lower risks make it an obvious choice for a portfolio investor. He expects investors to gradually begin increasing allocations, especially as Russia starts trading its sovereign bonds on the Euroclear, the world’s largest settlement system.