The murky outlook will clear for Russia

published 1 October 2007

Russia's RTS index has rocketed from 38 in 1998 to more than 2,000 today. Strong commodity prices have played a key part; they account for 80% of Russia's exports. But President Putin, despite raising political risk by re-establishing state control over the energy sector, has also brought about political and economic stability and overseen structural reforms designed to foster investment, as Christopher Granville points out in The Business.

Growth is running at almost 8%, with investment climbing at an annual pace of 27 %, while consumer spending is also rising rapidly along with real wages. Russia's middle class is estimated to have swelled from eight million in 2000 to 55 million today, notes Telegraph.co.uk. There's still plenty of scope for further consumption growth. According to Elena Shaftan of the Jupiter Emerging European Opportunities fund, bank retail lending has grown by 70% a year for the past few years but still only comprises 8% of GDP, compared with 100% in the UK. Meanwhile, the market is among the world's least expensive on a p/e of 11.

The short-term outlook is murky, given that all markets are susceptible to global jitters over the credit crunch, although Shaftan reckons Russia's healthy fundamentals should "come to the fore on a 12-month view". But one stock worth a look now is London-listed Sistema (SSA), a conglomerate with a core holding in the burgeoning telecoms sector and interests in insurance, banking, real estate and retail. This play on Russia's booming middle class is currently available for little more than the value of its telecoms assets alone, says Profit Hunter.