Mark Dampier: Look East, where streets are still paved with gold

The Analyst

I suspect the recent publicity and jailing for a further six years of the former billionaire Mikhail Khodorkovsky reinforces many people's attitude to Russia. Most investors will be old enough to remember the Cold War, too, which doesn't help. There is little doubt that Russia has a poor image and this is probably why its stock market is one of the most lowly-rated of the emerging economies, with an average price-to-earnings ratio of about seven or eight times. However, in a recent meeting with Elena Shaftan, who runs Jupiter Eastern European Opportunities fund, she reminded me of the many positives about Russia. She also pointed out that she doesn't run a purely Russian fund, but one that invests in the whole region, which includes 25 countries. These range from mature markets, such as the Czech Republic, to less developed Turkey and even Israel – a very different market with low correlation with other east European nations.

That said she still has about 60 per cent invested in Russia. Ms Shaftan explained to me that the Russians are realising they need foreign capital in order to privatise about $166bn of companies, and this has led to a U-turn on President Vladimir Putin's stance towards foreign investment, which she sees as very positive for the market overall. The actions of Dmitry Medvedev, the Prime Minister, have also been important in driving out corruption. So she believes there is a lot going on under the surface that we don't see in the news.

Of course, the Russian stock market is still significantly influenced by commodities, particularly the oil price, and while this remains comfortably above $60 a barrel, the Russian economy looks in good shape. I should further explain that although the price-to-earnings ratio of the market looks cheap, it is partly because many of the energy companies, including Gazprom, are extremely lowly rated. By contrast, many of the domestic companies in Russia trade on much higher multiples, though this has not dampened interest from foreign firms. The recent takeover of Wimm-Bill-Dann, a major dairy and beverage producer, by Pepsi clearly shows that Russia is not out of bounds for multinationals.

Ms Shaftan also likes Poland, a large market primarily driven by domestic demand. It has eastern Europe's third-largest population and is more developed than many of its neighbours. Poland had its credit crisis in early 2000 and has more or less put its house in order since then, with consumer spending remaining robust.

Another country she favours is Turkey, which has been one of the best-performing markets of 2010. It has attracted plenty of new foreign investment with an economy growing at 7 to 8 per cent a year and little domestic borrowing. This lack of leverage is attractive and Turkish banks look healthy and well placed to service the growing economy. Turkey is also still the second-cheapest market in the region after Russia, so the investment case remains intact. This fund is clearly not for widows and orphans as east European markets can be highly volatile. Nonetheless, I feel the long-term story of economic growth in these emerging economies has been rather forgotten about. It is a region with well-educated populations keen to cast off the Communist past and underpinned by an important manufacturing base. Many firms are benefiting from the trend of outsourcing by western European companies taking advantage of a good standard of education and fast delivery times.

Finally, unless the world can find a genuine replacement for oil in the near future, I find it hard to believe the long-term future for the oil price is not upwards. This should bode well for the Russian economy.

When investing in the region you need to know who you can trust. An experienced fund manager such as Elena Shaftan is important. For those who can take the inevitable volatility, the fund is a definite buy for the long term.

Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more details about the funds included in this column, visit

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Digital Optimisation Executive - Marketing

    £30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

    Recruitment Genius: Financial Reporting Manager

    £70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

    Recruitment Genius: Payments Operations Assistant

    £23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

    Recruitment Genius: Telephone Debt Negotiator

    £13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

    Day In a Page

    On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

    On your feet!

    Spending half the day standing 'reduces risk of heart attacks and cancer'
    Liverpool close in on Milner signing

    Liverpool close in on Milner signing

    Reds baulk at Christian Benteke £32.5m release clause
    With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

    The big NHS question

    Why are there so few new GPs when so many want to study medicine?
    Big knickers are back: Thongs ain't what they used to be

    Thongs ain't what they used to be

    Big knickers are back
    Thurston Moore interview

    Thurston Moore interview

    On living in London, Sonic Youth and musical memoirs
    In full bloom

    In full bloom

    Floral print womenswear
    From leading man to Elephant Man, Bradley Cooper is terrific

    From leading man to Elephant Man

    Bradley Cooper is terrific
    In this the person to restore our trust in the banks?

    In this the person to restore our trust in the banks?

    Dame Colette Bowe - interview
    When do the creative juices dry up?

    When do the creative juices dry up?

    David Lodge thinks he knows
    The 'Cher moment' happening across fashion just now

    Fashion's Cher moment

    Ageing beauty will always be more classy than all that booty
    Thousands of teenage girls enduring debilitating illnesses after routine school cancer vaccination

    Health fears over school cancer jab

    Shock new Freedom of Information figures show how thousands of girls have suffered serious symptoms after routine HPV injection
    Fifa President Sepp Blatter warns his opponents: 'I forgive everyone, but I don't forget'

    'I forgive everyone, but I don't forget'

    Fifa president Sepp Blatter issues defiant warning to opponents
    Extreme summer temperatures will soon cause deaths of up to 1,700 more Britons a year, says government report

    Weather warning

    Extreme summer temperatures will soon cause deaths of up to 1,700 more Britons a year, says government report
    LSD: Speaking to volunteer users of the drug as trials get underway to see if it cures depression and addiction

    High hopes for LSD

    Meet the volunteer users helping to see if it cures depression and addiction
    German soldier who died fighting for UK in Battle of Waterloo should be removed from museum display and given dignified funeral, say historians

    Saving Private Brandt

    A Belgian museum's display of the skeleton of a soldier killed at Waterloo prompts calls for him to be given a dignified funeral