What I learned about Russia as manager of an East European fund

Russia’s position is as confusing as ever

I find that top politicians and captains of industry usually have a certain aura about them.

They’ve got buckets of charisma and seem supremely confident, which is hardly surprising, given that these are the qualities that propel ambitious people up to the very top of the greasy pole.

World leaders in particular are the kind of people from whom you expect a polished performance – and to be ‘wowed’ when you see them in the flesh.

But there’s one that left me feeling… well, rather puzzled… on the two occasions I heard him speak – Vladimir Putin.

I saw Putin in action at a couple of conferences I attended in Moscow as the manager of an East European fund. Over six years I spent a lot of time meeting Russian businessmen and visiting the country.

The horrific events in Ukraine have brought Russia and Putin to the forefront of the news – so I thought that today I would reflect on some my Russian experiences.

How Russia went from state to stock market

For someone of my generation, brought up during the Cold War, visiting Russia and meeting Russian businessmen was a slightly surreal experience.

Here I was chatting about cash flow and mergers with people who, little more than a dozen years previously, were living in a communist system!

The state’s Five Year Plan had now been replaced by the stock market, and for many it had been a traumatic transition. The certainties of the old regime had been swept away, and the economy all but collapsed in the late 1990s.

And Putin emerged from nowhere to become president in the wake of this chaos.

Riding the wave of a commodities boom

His timing was brilliant. It coincided with a boom in oil and commodity prices which transformed Russia’s economic prospects.

Oil sold for as little as $10 a barrel in 1998, but the price rose to over $140 in the next ten years. For the world’s biggest producer, this was a windfall of massive proportions. And it made Putin look like a hero.

The tragedy is, of course, that he squandered this gift. That largely explains the mess the country is in today.

Not your average Russian bear

When I saw him, Putin’s speeches were on the dull side – but they were focused on business and the economy, so that’s not really much of a surprise.

It was also the wrong audience for his forte. Putin is a populist who connects with his voters using ‘earthy’ language. For example, telling the press to keep their “snotty noses” out of his private life isn’t very statesmanlike, but plays well with the peasantry!

What did impress me, though, was that he was prepared to take questions from the floor. And they weren’t stage-managed. In fact I remember some hard-hitting points being made about corruption and the state’s woeful failure to deal with it.

I even recall feeling a bit concerned about the future welfare of the person asking such a direct question!

Yet although Putin responded with the politician’s straight bat, he listened and took it in.

Putin vs the West

I also saw him sharing a platform with various Western conference-circuit luminaries such as Christine Lagarde and Paul Krugman. He listened to their presentations and chipped in with his views.

Given the time pressures on a head of state I was surprised to see him hang around like this, rather than being whisked off in a limo after giving his speech.

It would be nice to think that all this listening to Western influences was going to help in the process of reforming the economy and political institutions.

But that hasn’t happened. The oil price windfall has been frittered away. And the economy is currently grinding to a halt after the strong growth of Putin’s early years in power.

So what was Putin up to at these conferences?

What game is Putin playing?

I think he was trying to belong: to be part of the club.

You see, Russia has a problem with identity. It’s neither West nor East. And having been a superpower, it’s struggling to define a new role for itself. When the economy was booming, Putin seemed happy to look to westwards. But things haven’t worked out, and more recent efforts have been focused on improving ties with China. There’s even talk of a new ‘Bric Development Bank’ being set up to rival the World Bank.

So Russia’s position is as confusing as ever. Churchill surely got it right when he said the country was “a riddle wrapped in a mystery inside an enigma”.

And on a cynical note, what has been the consequence of the situation in Ukraine and Crimea? Putin’s approval rating has soared to a near record 86%. With the Russian economy teetering on the brink of recession, this is an amazing score.

Foreign policy has proved to be a very effective distraction from a woeful economic performance; a profoundly depressing thought.

So what does it mean for investors? That question will have to wait until next week, when I’ll send you another instalment of Penny Sleuth looking at Russia’s investment case.

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  • GrahamH

    So the more economic sanctions we impose, the more belligerent he is going to have to be to survive…..