Russia is still hostile

THE INVESTMENT COLUMN
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The Independent Online
CNIGEL COPE

NIGEL COPE

Russia remains a hostile environment for most Western investors. The Russian mafia plays fast and loose with the rules, while the austerity, poverty and chaotic structures left over from the collapse of the planned economy all make life difficult for the market economy.

Outside investors were concerned over the recent parliamentary elections which made the former Communists the biggest single party. Political developments seemed to be behind the recent decision by Stet, the Italian telecommuncations company, to pull out of a deal to invest in a new Russian telecom group.

Political risks remain. But the situation is less dire than two years ago. Inflation has come down this year from 17 per cent a month to less than 5 per cent, and although the Russian stock market has fallen 30 per cent in the past year, there is a nucleus of about 50 stocks which are actively traded. They include Lukoil, an oil company with 15bn barrels of reserves, Unified Energy (utilities), Mosenergo (Moscow power company), GAZ (Gorki cars), Red October (chocolates), and a raft of shipping, paper and resources companies.

A few hardy investors are already operating there, on the grounds that mistakes can be made relatively cheaply, and valuable contacts and experience gained. Pictet has a specialised fund, First Russian Frontiers, whose declining share price graphically illustrates the risks.

Framlington operates a Russian Investment Fund, which invests inRussian companies already in partnership with western groups. Determined private investors who want a direct punt should also take a look at JKX Oil & Gas, currently looking for oil in the south-west of Russia, and Bakyrchik Gold, which is appraising gold prospects in the central Asian region.

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