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Fund file: Bullish on Russia?

Financial Times

Investors should look before they leap into investing in Russia, according to a report in Monday’s FTfm, but it is very unlikely that many will do so.

On the face of it, huge strides that have been made in the last year or so will make Russia a more friendly place for overseas investors.

“Right now we’re going through a period of moderate liberalisation,” says Jan Dehn, chief strategist with Ashmore, an emerging markets specialist.

He can see evidence of this in recent measures to allow greater flexibility of the rouble and in moves to encourage foreign ownership of local currency bonds. Until recently, he explains, foreign ownership of rouble-denominated Russian sovereign debt was about 3 per cent. It is now 5.4 per cent and Dehn expects the proportion to rise to something closer to the emerging market average, which is 20 per cent.

There is also a ministry of finance proposal that will require any listed company with majority state ownership to pay out 25 per cent of its profits in dividends to shareholders from next year. By next year, also, Russian companies will have to follow IFRS international accounting standards.

Small wonder that Dehn, along with many other emerging market fund managers, reports being overweight Russia.

Bill Browder, founder and chief executive of Hermitage Capital Management, thinks they have either foolish optimism or very short memories, or both.