Investing in Russia
So where do the investment opportunities lie in Russia, if indeed there are any?
Renat Nadyukov, portfolio manager of emerging markets equities at ING Investment Management, believes Russia remains one of the few unleveraged economies with its relatively low dependence on foreign capital inflows.
He advises: “In terms of investment opportunities, privately-owned Russian energy and materials companies offer an attractive entry point given depressed valuations, superior resource base, increasingly stable taxation framework and attractive free cash flow and dividend yields.
“Together with mining companies, Russian oil majors are the main beneficiaries of currency weakness as their costs are mostly in Rubles and revenues are mostly in US dollars.”
He adds: “In general, we avoid exposure to leveraged Russian companies due to rising costs of capital and effectively closed financial markets.”
Mr Nadyukov claims that lack of reforms and confidence in Russia’s ability to “maintain coherent macroeconomic policy” explains the perceived lack of opportunities better than geopolitical risk.
“Russia has always been a very volatile market so investors are used to elevated risks when investing into Russian equities,” he concludes.
