Mark Dampier: Look East, where streets are still paved with gold
Saturday 08 January 2011
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 www.h-l.co.uk/independent
10 tips for taking out a personal loan
Simon Read: Frozen in time - the expat British pensioners who deserve a better deal
Donald MacInnes: My wasted hours in the retail deserts of Dixons-Carphone
Pension firms must ask consumers more questions, says City Watchdog
How to start your own internet business
- 3 Russian girl takes her own life after parents find pornography on her computer
- 4 Ball pool for adults opens in London
- 5 Amal Clooney gives excellent response to fashion question at European Court of Human Rights
9 reasons Greece's experiment with the radical left is doomed to failure
'We would evict Queen from Buckingham Palace and allocate her council house,' say Greens
Have we reached 'peak food'? Shortages loom as global production rates slow
Greece elections: Syriza and EU on collision course after election win for left-wing party
British grandmother Lindsay Sandiford faces execution by firing squad in Indonesia
Liberal Democrat minister defends comments suggesting immigration causes pub closures
iJobs Money & Business
£13000 per annum: Recruitment Genius: This Pension Specialist was established ...
£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...
£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...
Competitive salary & benefits!: MBDA UK Ltd: MBDA UK LTD Indirect Procurement...
Day In a Page
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village