There’s risky, and then there’s Russia. Investors have had further reminders recently of the political risk inherent in the market: worries over property rights flared up again when the government intervened in Shell’s Sakhalin-2 exploration project, while the central bank’s deputy chairman, who had spearheaded a campaign against money laundering, was assassinated. These incidents have tempered enthusiasm for Russian stocks, and the benchmark RTS index, while up by about 40% this year, has fallen back of late.
But there’s little to fear on the political front, reckons emerging markets guru Mark Mobius. It’s “not unusual” for a government to seek to control key sectors of its economy – Russia is the world’s number-two oil exporter – and there is an underlying commitment to a market economy. There’s also plenty to like on the macro-economic front, with growth humming along at 6% and the commodities boom allowing Russia to run a budget and a current-account surplus. With just 3% of its exports going to America, according to Goldman Sachs, the economy looks well insulated from a US slow down. And the market still looks reasonably priced on a p/e of ten.
Most significantly, Russia is becoming more than an oil and gas story,
as Investor’s Chronicle notes. Rising disposable incomes (real income growth is set to keep climbing at 6.5 to 7.5% a year until 2010) are powering consumption, with food retail revenues alone expected to expand by an annual 15% in the next five years.
The banking and mortgage sectors are developing fast, in turn powering a sustained boom in construction. But there is still some way to go; loans secured against property comprised just $1bn, or 0.3% of GDP last year. McKinsey thinks the mortgage market could be worth $25bn by 2010. This makes market leader Sberbank (SBNA, e197 in Frankfurt) worth a look, while Investors Chronicle highlights consumer services group Sistema (SSA, $26), whose interests include real estate and telecoms. A fund concentrating on Russia is the Neptune Russia and Greater Russia, up by 38% over the past year.