RUSSIA - Investors can not afford to take a passive approach to investing in Russian stocks, Hermitage Capital Management has warned.
Speaking on the Russian investment landscape, Bill Browder, founder and CEO of Hermitage, said the Russian economy was currently enjoying one of the best macroeconomic positions in the world.
He said the Russian stock market remains the cheapest in the emerging market universe, offering numerous benefits for investors, however he warned corruption within companies meant investors could not afford to take a backseat.
“Corporate governance is a disaster in Russia,” he said. “Investors can’t be passive. They must be active in order to protect their interest.”
Browder, a shareholder rights activist and outspoken fighter for better corporate governance in Russia, has been credited for a number of breakthroughs in improving corporate governance standards at major Russian companies, including Unified Energy Systems, Sberbank and Gazprom.
Browder sought to dispel fears of re-nationalisation and political upheaval in Russia, saying the destruction of Yukos had little to do with re-nationalisation and more to do with the behaviour of Mikhail Khodorkovsky, the oil giant’s former head, who was recently jailed for nine years over fraud, embezzlement and tax evasion.
He said the catalysts driving the Russian stock market were the end of re-nationalisation discount, recognition of higher oil prices, Russia’s oil reserves and increasing liquidity.
Russia is just beginning to develop its vast East Siberia territory and is yet to explore most of the off-shore potential, meaning there may be even more oil reserve growth going forward, he added.
Although bullish on Russia’s outlook, Browder admitted the biggest risk for the country is the future of politics from 2008, when President Putin’s two-term limit ends.
He noted other risks were: the possibility that Yukos was not an isolated incident, oil falling to less than US$20 per barrel, equity risk premiums rising across the globe, catastrophic political change within Russia and major change in the Central Bank’s currency policy.
Hermitage is an investment advisory firm specialising in Russian equities for major financial institutions and high net worth individuals, with more than US$1.7bn invested in Russia.
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