Consumers and oil lead Russian bounce back
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Russia is bouncing back from last month’s global market jitters, with its RTS index up by almost 10% over the past fortnight – and 63% up on the year.
As Guy Chazan of The Wall Street Journal points out, the investment climate has begun to recover after the Kremlin dismembered oil giant Yukos last year. President Putin’s efforts to reassure investors over property rights – along with receding fears of strict limits on foreign participation in the energy sector – have stimulated a rebound in foreign investment, which jumped by 30% year-on-year in the first half of 2005.
Moreover, outflows of private capital are falling. Growing confidence, along with high prices for Russia’s main export, oil, is underpinning GDP growth, which is expected to reach 6% this year. Expensive oil and prudent economic management have resulted in both current account and budget surpluses, and all three major ratings agencies have given Russia an investment-grade credit rating.
The scope for consumption growth is also enormous. “Mortgage lending has not even started”, says Mark Dampier of Hargreaves Lansdown, and mobile penetration is still 70%, compared to more than 100% in most of western Europe.
What’s more, credit cards have only recently made an appearance. Add to this backdrop a p/e of just eight, and the market, despite political risk and the need for better corporate governance at firms, is well worth a look.
Among the few funds concentrating on Russia is the JP Morgan Fleming Russia Securities Trust, up 211% over the last three years. An eastern European fund with half of its assets in Russia is the Jupiter Emerging European Opportunities Fund. It’s 208% ahead over three years.
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