Russia leads emerging markets back to favour

Russia is leading emerging markets back to favour among international fund managers after three years of underperformance, according to a survey published yesterday.

Among the most bullish about the country, Edinburgh Fund Managers is forecasting that the Russian market will outperform the best Asian market by 20 per cent this year. And there is widespread belief among other professional investors that it will emerge as the strongest performer in 1997.

The findings come from the latest quarterly survey conducted by Burson- Marsteller, the public relations consultancy, of 35 emerging market investors who manage 70 per cent of all portfolio investment in developing markets.

It comes ahead of the arrival in London next week of six of Russia's leading companies, including the GUM retailing group and Surgutneftegaz, the second-largest oil group, on a roadshow to encourage UK institutions to invest more in the country.

Explaining the new enthusiasm for Russia, Paul Philpotts, Burson-Marsteller's managing director, said: "Six months ago, institutions thought other parts of Eastern Europe were good investments. They now see Russia as a good buy. It's undervalued. Also the election means that politically it has become more stable."

Mr Philpotts added that the survey also showed that Latin America was "definitely back with a vengeance", having got over the Mexican financial crisis of 1994/95. Investors believe that economic recovery will continue in the area, fuelled by lower inflation, greater control of budget deficits and positive growth. Once seen as being tied to the US economy, the view was increasingly that the area could weather a correction in either US interest rates or on Wall Street.

Despite some signs that Poland and Hungary are looking over-priced compared with six months ago, Eastern Europe is still seen as offering some of the best opportunities among emerging markets. Smaller, so-called frontier markets, such as Slovakia, Ukraine and Croatia are also attracting some interest, the survey shows.