Russia's economy recovers but remains volatile

"Is Russia really a 'Bric'?" That's the question many investors are asking in light of the country's performance during the global crisis. It hasn't shown much of the resilience that these big emerging economies are supposed to offer. Growth fell further and stayed down longer than in the other three Brics, and in non-Bric heavyweights such as Indonesia.

This debate is "tired" and overdone, says Troika Dialog. There's no doubt that Russia is a Bric. Indeed, it may be the "best of them". As the "world's main storehouse of raw materials", it is the cornerstone of the emerging-market story such a resource-intensive transformation can't happen without it. It has the best education levels, the lowest debt/GDP ratio, the highest GDP per capita and the largest middle-class proportion of the total population of all four emerging giants. Its geography and climate make it the least vulnerable to global warming, while it scores far better on per-capita reserves of fresh water and cropland. All this is priced on a p/e ratio of just 7.5 times, a substantial discount to most of the emerging markets.

Naturally, that reflects investors' views of the risks. But many of these are overstated, says Mathias Westman of Prosperity Capital Management, the largest foreign investor in the country.

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Most notably, those that claim the government is trying to reassert the state's dominance over the economy are wrong. How do they explain moves to extend privatisation to ports, power utilities and railways? The biggest real risk is lax corporate governance, but things are improving here too.

Meanwhile, after a painful time during the crisis, the economy is recovering strongly, says UBS: credit, car sales and housing are all pointing up. "This is one of very few EM markets that still have room to surprise on the upside." The snag is that "as ever, much depends on the price of oil", says Capital Economics. Falling oil prices would have a big impact on the economy. If they are accompanied by capital outflows as in the past they could put the "fragile" banking sector under strain. For all its positives, Russia remains a volatile and vulnerable market at a time like this.