The Analyst: Russia looks far from a bear market
Saturday 23 August 2008
Conflict between nations often puts a dent in investor sentiment. This was in evidence recently when the Russian market reacted very negatively to the conflict in South Ossetia.
But the Russian market was weighed down by other factors before the conflict. Chief among these were a fall in the oil price and the government's interference in the pricing of coal. South Ossetia was just another factor adding fuel to the fire. However, this should not have a significant impact on Russia's economy or corporate fundamentals. Over the long term, these are what will drive market performance .
Although Russia has a poor image in the West, we should not lose sight of the investment opportunities the region has to offer. Valuations are now at levels last seen over five years ago, making them highly attractive. The difference today is that the Russian economy is significantly stronger than back then. Also remember that the oil price was around $30 (£16) per barrel five years ago compared to over $100 (£54) now, and this has been a huge driver of Russia's growth.
The Russian market has gone up by more than 1,400 per cent over the last 10 years. It continues to offer compelling opportunities and, while there are various routes into the region, I believe the JPMorgan New Europe Fund is worth considering.
The advantage of this fund is that its investment universe extends beyond Russia. It currently has 66 per cent in Russia, but the fund also invests in the fast growing regions of Eastern Europe. This gives it an element of diversity in what is a higher risk region.
What's more, JPMorgan was an early investor in the region. The fund has been managed by Oleg Biryulyov since its launch in 1997. He is based in Moscow, but supported by a co-manager, Sonal Pandit, in London.
There are currently three dominating themes in the portfolio. The commodity cycle is one; oil and gas accounts for nearly two-thirds of Russia's exports and the general rise in prices have helped bolster Russian growth. Russia's dependency on these commodities is high, so economic diversification is the government's top priority.
This leads into the next theme of consumption and infrastructure spending. Wages have risen over time and domestic consumer demand has been strong as a result. In terms of infrastructure, a vast sum of money is being directed into the country which will boost the construction, property and transport industries. One of the south-western cities, Sochi, is hosting the 2014 Winter Olympics, which is also due to prompt a large cash injection into the region.
The final theme is the expanding links between Central and Eastern Europe. This has been leading to an alignment of the legal and economic frameworks, a lowering of interest rates, and the development of the financial sector. Experience from countries that have joined the EU shows productivity and real wages have risen substantially from low levels and this has helped businesses to grow.
This is a fairly aggressive fund with a focused portfolio of 45 to 65 holdings. The manager will put full conviction behind his ideas; if he doesn't like a stock, he won't own it. A good example is Gazprom, which the fund currently has no exposure to, despite the fact it makes up over 26 per cent of the Russian index.
Instead, the manager is positive on companies such as Mechel, which should benefit from the infrastructure story despite the bad publicity it has received recently.
Few funds have delivered a positive return over the last year but this one has. It is up 11.4 per cent versus 5 per cent for the MSCI Emerging Markets Europe Index.
Although past performance is not always a guide to future returns. There are some fruitful investment opportunities in Russia and its neighbouring regions, and this fund is well placed to capture those long-term growth prospects.
Meera Patel is a senior analyst at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more information about the funds included in this column, visit www.h-l.co.uk/independent
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
It scooped up an unprecedented 11 Academy Awards when it was first remade in 1959
Olympic diver has made his modelling debut for Adidas
Actors star in Woody Allen's 'Magic in the Moonlight'
Revellers will have to pay to see New Year's Eve fireworks in London
...and the perfect time to visit them
Newcastle winger reveals he has testicular cancer - and is losing his trademark long hair as a result
Man's attempt to avoid being impounded heavily criticised
- 1 iPhone 6 review: bigger, thinner, faster, brighter - Apple proves you can make the best better
- 2 Sports Direct security guard allegedly banned Jewish schoolboys and told them: 'No Jews, no Jews'
- 3 Watch a man race the Circle line - and win
- 4 Pakistani passenger power forces two politicians off plane
Daniele Watts: Django Unchained actress detained by Los Angeles police after being mistaken for a prostitute
Scottish independence referendum: A nation divided against itself
The political class is doing what Hitler couldn’t – destroying Britain
Scottish independence: Nationalist leader Jim Sillars threatens pro-union companies with 'day of reckoning' after independence
Scottish independence: Yes campaign feels the heat as Alex Salmond's NHS claims come under furious attack
Portuguese academic says British are 'filthy, violent and drunk'
iJobs Money & Business
£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...
£20000 - £25000 per annum + OTE £35,000 first year: SThree: The SThree group i...
£20 - 24k (Uncapped Commission - £35k Year 1 OTE): Guru Careers: We are seekin...
£20 - 24k + Benefits: Guru Careers: This is a great opportunity for an enthusi...
Day In a Page
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
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony