February 28, 2008 |
|As the latest polls predict a landslide victory for Dimitry Medvedev in the Russian presidential elections this weekend, Baring Asset Management (Barings) believes Russia continues to be an attractive investment opportunity throughout 2008.|
Martin Majdaniuk, manager of the Baring Emerging Europe Trust commented: “With its rich energy base, appreciating currency, rising foreign exchange reserves and strong balance sheet, we believe Russia represents a very attractive investment opportunity. Medvedev is likely to continue with Putin’s stabilising policies, having promised Russia ‘decades of stable development’, while at the same time calling for less state intervention in the economy.“
“We expect healthy economic growth to continue as companies within Russia increase their capital spending and the government looks to improve the country’s internal infrastructure through public spending initiatives, supported by tax receipts from strong oil revenues. It is estimated that Russia will spend the equivalent of around US$1.5 trillion on its infrastructure between 2006 and 2020. This demonstrates that Russia’s growth will be driven by internal investment rather than being dependant on external developments.”
Baring Emerging Europe Plc is currently overweight in Russian equities, with approximately 60% of the fund invested in the region. Martin Majdaniuk points out that one of the most attractive features of Russian stocks is that they have been relatively well-insulated from global stock market volatility.
Majdaniuk continues: “While many are concerned about the prospects of a recession in the US and global inflation pressures continue to affect markets, we are confident that the risks to Russian corporate earnings remain limited. Correlation levels between US growth and the rest of the world have reduced dramatically over the past 15 years - indeed, only 5% of Russian output is currently exported to the US, with considerably more going to China and Western Europe.
“We believe that commodity prices will continue to increase in the short to medium term, thereby supporting the Russian economy, and supply constraints should result in oil prices remaining relatively high. Russian wages are growing at 15-17%, which will drive further consumer consumption.
“Our key investment themes in the fund are strength in the domestic economy, investment in infrastructure and the rapid development of the agricultural sector. We are participating in the domestic story primarily through consumer stocks, which we believe are beneficiaries of a strong currency and domestic demand, particularly within the mobile telecoms sector, and banking stocks that we believe are not exposed to credit woes. To take advantage of the boom in construction in Russia and its former republics we have invested in companies producing steel, cement and electricity. We have gained exposure to buoyant global demand for agricultural products through producers of potash fertilizer and companies that own agricultural land.”