The rush to invest in Russia
Russia has been out of fashion among global investors for several years. But things are now looking up.
Russia has been out of fashion among global investors for several years. The longest recession this century, caused by the collapse in oil prices in 2014 and exacerbated by US and EU sanctions, badly dented its appeal. But things are looking up. As Steve Johnson points out in the Financial Times, Russia is now the largest overweight position in the average emerging-market fund, which holds 1.46% more Russian stocks in its portfolio than the benchmark MSCI Emerging Markets index.
Why the turnaround? It's partly because the previous emphasis on long-standing favourite India looks overdone. In Russia, by contrast, stocks are cheap and the economy is slowly recovering; in the second quarter, year-on-year GDP growth reached 2.5%, a three-year high. Consumers, shell-shocked by a protracted squeeze on real wages amid a slide in the rouble, have regained some confidence. In the oil sector, companies have been forced to develop their own drilling technology as sanctions thwarted access to foreign expertise. Some domestic firms such as cheesemakers have been boosted by the absence of imported competition, thanks to Russian counter-sanctions. Corporate profits have started to climb after a long decline, says Johnson.
But the rush to Russia may be more of a fad than a new trend. The economy has already reached what the central bank considers to be its likely speed limit, says Olga Tanas on Bloomberg. The oil-rich years were a good chance to implement structural reforms in order to bolster long-term growth, but they were squandered. "From weak institutions to a poor business climate, the choke points" holding Russia back are well known, but constantly ignored.
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Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.
After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.
His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.
Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.
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