RUSSIA - Not even the so-called BRIC countries survived unscathed the credit crisis, despite performing well above western countries in recent years, according to participants of a recent roundtable in Moscow.
As with Brazil, India and China, it was pointed out that in Russia the extent of the losses and the vanishing liquidity surprised international investors and Russians alike.
Kevin Dougherty, portfolio manager at Pharos Financial Group, said when current volatility - especially in commodity markets - was over, Russian investors could start to re-focus on fundamentals.
In terms of other forces impacting current market conditions, Dougherty said: "Clearly the actions of the Russian government will be big factors, two of the most important being where government spending and investment is directed, and then tax policy, which is an extremely important element of the profitability outlook for different sectors of the economy."
Looking at investors' behaviour, Oleg Jelezko, founding partner of DaVinci Capital, observed that generally Russian investors would follow their western counterparts in getting rid of their holdings in the Russian market.
He commented: "There are general factors like a lack of confidence in corporate governance, failing commodity prices, and then the war in Georgia that contributed to the crisis. To be precise I wouldn't say western investors ran away, they simply stopped investing, because as far as the outflows from the western funds, we haven't seen such big outflows yet."
Jelezko also emphasised the Russian pension system was still not providing sufficient inflows in to the stock market.
On the same line, Maxim Tishin, senior portfolio manager at UFG Asset Management, added the assets of the pension system were not huge compared to the size of the market.
He explained: "There are about US$10bn in the reserves of the whole pension system of Russia but that is growing 20% per year through inflows, because the pension system is so young."
He pointed out: "One of most important things to accomplish over the next few years will be the development of a strong and reliable domestic institutional base."
Andrei Ivanov, partner at ARBIC, claimed that for the longer term horizon Russia now represented a lifetime opportunity, strongly emphasising that the market had overpriced the commodity risks at current levels and that political risk premiums could disappear within a year.
Most managers said their investor base was mainly composed by non-Russian investors, with only Andrei Smirnov, founding partner of MARS Capital, saying the majority of its investors were Russian institutions or high net worth individuals.
Looking at the evolution of Russia as an investment destination, Smirnov said corporate governance issues were sensitive, particularly in the small-mid cap sector.
He said: "Sometimes we have to fight with the owners of the company in order to protect the investors' interest in cases of fraud, improper valuations on corporate actions or violation of rights of minority investors."
However, he concluded there was a positive trend and such cases became more and more rare.
This week's edition of Professional Pensions is out now.
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