New York (HedgeCo.net) -Peter Elam Håkansson, Head of Portfolio Management Team and Marcus Svedberg, Chief Economist of East Capital are positive in their outlook for Russia this year, citing reforms, privatisation and a sharp change in international investor perceptions as key reasons.
“Since the financial crisis, Russia has seen a strong flow of assets in favour of other emerging markets, with the international investment community acknowledging Russia’s commitment to reforms and privatisations which are all positive steps in the right direction,” Peter said, speaking in a webcast to investors.
Inflation
Asked whether inflation is a problem, Marcus said, “Russia is used to dealing with high inflation with double digit figures throughout almost all periods of the past 10 years, and today’s figures are comparatively low.
We don’t want to sound complacent about the inflation issue; it is certainly worth paying attention to. Inflation should rise above 10% in the near future, then unless Russia experiences a terrible drought, it should come down later this year.”
Privatisations- IPOs
Commenting on the privatisations of Russian companies, Peter said, “The more listings that come to the market the better. We welcome IPOs and believe it’s a very positive trend. The recent listing of Russian Bank VTB was a good example of a strong investment theme playing the Russian economy in a positive way.”
“The merger of RTS and Micex going forward will bring uniformity to the Russian stock market, where you will no longer see two exchanges competing against each other.”
Sector Themes in Portfolio
One of the key themes is Russia’s rising middle class and their increased appetite to spend and obtain a mortgage in a low interest rate environment. As a result, East Capital sees real estate development, construction and materials sectors as key themes likely to benefit from these changing patterns and low interest rates.
Election 2012
“We don’t believe the elections next March will result in change. It will be the same people running the country, there may be some job rotations, but it won’t impact too much. The good news is that stability will be maintained,” said Marcus.
Closing the Discount
Peter concluded by saying, “Russia has always traded at a discount to its emerging market peers. It has to do with misconceptions and misunderstandings of what is happening in Russia. No market is a risk free market, and that is true for Russia. However we believe that too much risk has been allocated to Russia and consequently people’s investment decisions. The real risk is lower than perceived risk.
“If we continued to see more stability combined with more economic reforms, we should gradually see a closing of the discount. It may take around three years, but the trend is definitely there.” (View on demand)
Editing by Alex Akesson
