Wage growth in Russia makes consumer sector attractive, says Invesco
Wage growth in Russia, prompted by the country’s recent accession to the World Trade Organisation, is boosting consumer demand, making the consumer sector an attractive investment opportunity.
In the opinion of Liesbeth Rubinstein, fund manager for emerging markets at Invesco Perpetual, this will be driven, Russia’s growing middle class, which has been lacking as a social stratum since the collapse of the Soviet Union back in the early 1990’s.
Merrill Lynch analysts expect the number of well-off individuals (with monthly disposable incomes in excess of RUB35,000, or €870) more than trebling by 2020, from its current base of 20m to over 66m.
Even the increasingly gloomy expectations for the global economy have not stopped Russians spending.
A recent survey conducted by Russia’s analysts Romir Research Holding found that some 56% of the 1,500 respondents expect a second wave of the crisis to hit in the near future.
Despite this, the consumer confidence index provided by Russia’s Levada Centre has remained stable since last December and has gained two points between August and September.
This may well be because Russia is not as affected by a European slowdown as the countries directly involved in the Eurozone crisis, even if its economy suffers the knock on effects.
Rubinstein believes Russia is well positioned to withstand external shocks, such as a Greek exit from the Eurozone, due to its increased economic flexibility and robust gross domestic product growth (around 4% against a contracting Eurozone economy).
It may also be that the worries about an impeding “second wave” of the crisis are making Russia’s population spend money while they have it, with the mentality of Russians still leaning towards spending rather than saving.
They can afford to do so, too, with household and corporate sector debt levels lower than in other countries across Western Europe.
Russian household debt is 10% of GDP, compared to around 75% levels for Western Europe, Invesco’s figures show.
Invesco is not the only manager seeing opportunities in the consumer sector. Many of the global investors in Russia see a similar story.
Swiss & Global’s manager Javier Garcia, who manages the firm’s Russia focused fund, for example, sees a natural preference in his portfolio for consumer stocks, despite his bottom up investment approach.
He names the consumer electronics sector particularly attractive, which is experiencing increased demand from Russians as their spending powers grow.