Connect with us

Analysis

News

CONFIRMED: Foreign investors flock back to Russia

As economy strengthens Russia overtakes India as top pick for foreign investors and equity funds

Alexander Mercouris

Published

on

1,508 Views

This article was first published by RussiaFeed

Growing investor confidence in the Russia as its historically high inflation rate continues to fall, and as its economy leaves recession behind it, has received dramatic confirmation with the news that for the first time Russia has overtaken India as the preferred investment option of emerging market investors.

This confirmation comes from the most authoritative possible source, an article in the Financial Times, which in recent years has been intensely critical of Russia.

Russia has taken over from India as the largest overweight position for emerging market equity funds.

The move comes despite the imposition of ever-tighter sanctions on Moscow, still low oil prices and an economy now pulling out of bitter recession but still assailed by real, inflation-adjusted interest rates of 5.2 per cent.

In contrast, India has long been a darling of foreign investors licking their lips at the prospect of the world’s second-most populous country growing at a punchy rate, assisted by the reformist zeal of Prime Minister Narendra Modi.

“Russia is now the largest overweight position among emerging market managers for the first time since our records began in 2011, surpassing longstanding EM favourite India,” said Steven Holden, founder of Copley Fund Research, who compiled the data and confessed to “surprise” at Russia’s newfound popularity.

The average EM equity fund is now overweight Russia by 1.46 percentage points, surpassing the 1.4 percentage-point figure for India, where fund managers had an average overweight position of 4.4 per cent in early 2015, according to Copley’s numbers, as shown in the first chart.

The data are based on the holdings of 126 funds with combined assets of $300bn. Of these funds, 72.8 per cent are now overweight Russia, compared with only 60 per cent with an outsize position in India….

The article points out correctly that foreign investor interest in Russia starts from a very low base, and that Russia has overtaken India as much because of India’s recent loss of attractiveness as Russia’s rise in attractiveness.

However the article also makes it clear that the rise in investor interest in Russia is ultimately driven by Russia’s increasingly strong fundamentals

Mr Jain is among a group of investors with a genuine fervour for Russia now, which is striking given that he was “ultra bearish for 15 years”, while CIO of Switzerland’s Vontobel Asset Management, where he ran as much as $32bn. Yet now his GQG Partners Emerging Markets Equity fund has an exposure of 10.2 per cent to Russia, more than three times its index weight.

“I was publicly critical of investing in Russia. I have covered Russia for 25 years and this is the most I have had,” he said.

Nicholas Field, EM strategist at Schroders and co-manager of the group’s Global Emerging Market Opportunities fund, is another convert, with a punchier weighting of 14.2 per cent.

“A lot of the headlines one reads about Russia are about geopolitics and relations with the US and so on, but when you look at the economy you do see some things that are interesting to investors,” he said.

Mr Jain’s thesis is that the sanctions imposed on Russia by the US and EU, as well as the slide in oil prices, have been largely beneficial to foreign investors because they have forced Russian companies to delever and cut costs.

India is very expensive. It has gone from very cheap to one of the most expensive markets.  More specifically, he says Russian oil companies have been forced to develop complex drilling technology in-house, potentially helping them in the long term, while some domestic agricultural companies, such as cheesemakers, have benefited from reduced foreign competition amid Russian counter-sanctions on European food imports.

“Sanctions have been positive for the Russian corporate world. [Companies] were forced to get their act together and there was a massive cost-cutting effort,” said Mr Jain. “Because of this cost-cutting, operating profits are higher than people estimate. Corporate earnings have begun to recover after a long slump. You have to follow the corporate profits.”

He even sees positives in the travails of Otkritie and B&N Bank, two private banks that have been bailed out by the central bank and nationalised in recent weeks after running into financial difficulties.

About 4.2 per cent of Mr Jain’s fund is invested in Sberbank, Russia’s largest bank. He said: “The banking industry has seen massive consolidation. Now three banks control 70 per cent of the assets. “Sberbank is very well run, on six times earnings. How many banks make 20 per cent ROE [return on equity] in the middle of a recession? The position they have wouldn’t be allowed in many countries, and now there is tremendous credit growth and NPLs [non-performing loans] are coming off.”

Overall, he sees room for further top-line revenue growth, margin expansion and a market re-rating, given that Moscow currently trades on a price/earnings ratio of just 7.8 and has a chunky dividend yield of 4.7 per cent.

Readers of RussiaFeed and of The Duran will already be familiar with much of this.  By way of example, here is a recent article I wrote for The Duran on the subject of Russia’s advances in oil drilling technology (one of the subjects touched on in the Financial Times article by Rajiv Jain), whilst the rapid advance of Russian agriculture, in part as a consequence of Russia’s counter-sanctions (a subject also touched on by Rajiv Jain) was recently discussed by me on RussiaFeed here.

As for the growing strength of the Russian financial and banking system – historically the Achilles heel of Russia’s post-Soviet economy – I have discussed it many times and in many places (see for example here and here).

What is finally happening is that the international investment community – and the Financial Times – are finally catching up with the truth of all of this.

Given the enormous amount of negative “noise” from which Russia suffers and the Financial Times’s longstanding hostility to the country and its government, the article about international investors coming to Russia nonetheless and entirely unsurprisingly comes with a sting in its tail.  The growing interest in Russia is supposedly not because its long term economic prospects are good.  It is only because of Russia’s recovery from recession

Mr Field’s optimism is fuelled by the country’s economic recovery, which he expects to continue until at least the middle of 2018. “Demand has been suppressed so the recovery should continue for a while. Inflation has dropped to 3.3 per cent, which is pretty unheard of in Russia. In the next 12-24 months there is room for quite a few interest rate cuts and that can certainly boost the economy. The one thing that can upset that is another major move in the oil price,” said Mr Field.

Nevertheless, he is not a long-term bull. “We don’t think long-term structural trend growth is very high, so as much as people are buying into Russia now it’s not because it has a glorious 10 or 20 years ahead, it’s because it’s recovering.”

We are likely to hear numerous such comments over the next few months as Russia’s renewed economic growth becomes impossible to deny even by those who previously said it would never happen.

Such comments are actually meaningless.  In what sense is an economy’s successful recovery from recession a reason for doubting its future growth?

Putting that aside, the article itself provides abundant examples of the ‘structural reasons’ why strong growth in the future is likely.  To repeat again the comments which appear in the article from Rajiv Jain

…….Russian oil companies have been forced to develop complex drilling technology in-house, potentially helping them in the long term, while some domestic agricultural companies, such as cheesemakers, have benefited from reduced foreign competition amid Russian counter-sanctions on European food imports.

“Sanctions have been positive for the Russian corporate world. [Companies] were forced to get their act together and there was a massive cost-cutting effort,” said Mr Jain. “Because of this cost-cutting, operating profits are higher than people estimate. Corporate earnings have begun to recover after a long slump. You have to follow the corporate profits.”

He even sees positives in the travails of Otkritie and B&N Bank, two private banks that have been bailed out by the central bank and nationalised in recent weeks after running into financial difficulties.

About 4.2 per cent of Mr Jain’s fund is invested in Sberbank, Russia’s largest bank. He said: “The banking industry has seen massive consolidation. Now three banks control 70 per cent of the assets. “Sberbank is very well run, on six times earnings. How many banks make 20 per cent ROE [return on equity] in the middle of a recession? The position they have wouldn’t be allowed in many countries, and now there is tremendous credit growth and NPLs [non-performing loans] are coming off.”

What is cost-cutting, greater efficiency, development of new products and new technologies, high operating profits and (within the banking system) successful industry consolidation if not evidence of the economy successfully addressing its structural problems, thereby ensuring its successful long term growth in the future?  No doubt there is much more still to do, but why go on pretending that nothing is happening when it obviously is?

One of the perennial problems discussion of Russia’s economy faces is that its Western critics insist on having it both ways.  They are forced to concede that the Russian economy has successfully adapted to the harsh post-2014 economic conditions in which it found itself (low oil prices and Western sanctions) and is now recovering from a recession that most of them thought would break it, but at the same time they refuse to admit that this successful adaption of the Russian economy to these same harsh economic conditions in any way undermines their deeply critical even at times apocalyptic picture of it.

In reality an economy that could adapt so quickly and so successfully to the challenges it faced in 2014 cannot be the inefficient, corrupt, badly managed, ‘kleptocratic’ and underdeveloped ‘Zaire with snow’ economy imagined by its Western critics.

The article in the Financial Times shows that increasing numbers of fund managers, including some like Rajiv Jain and Nicholas Field who had previously bought into this dark picture, are starting to see the truth of this.

Liked it? Take a second to support The Duran on Patreon!
Advertisement
Click to comment

Leave a Reply

avatar
  Subscribe  
Notify of

Latest

US Neocon Foreign Policy and the War Waged Against Serbia

The Serbian assault began first by a ‘financial war’; by sanctions and finished off by an aggressive unprovoked incessant NATO bombing campaign.

Richard Galustian

Published

on

The ‘witch-hunt’ against President Trump over Russian collusion has officially ended, following the submission of the Mueller Report, enabling us to now focus on the real problems of America that effects the whole world.

In the hope of a waining of the Russophobia in America, let’s look at the US’s recent war history by starting with the 20th anniversary this month of the NATO war on Serbia in 1999 which amounted to almost 100 days of bombing of historic cities and infrastructure.

Firstly, these problems are, in the main caused by the Neocons, or Deep State, whatever you wish to call them, and the continuing promotion, by the US Military-Security Industrial Complex, of wars and regime change and secondly, Trump’s unreserved support for Israel, regardless of war crimes they may continue to commit against the Palestinians.

Incredibly after that one sided unjust and illegal war that NATO executed, NATO has the audacity to invite Serbia to join it! Something that will never happen. What do they smoke in DC, in the Pentagon and Brussels based NATO?

To compound these overall problems, the US Military and Israeli Defence Forces collaborate on these US regime change policies on all continents evidenced most recently by the arrival of crack Israeli troops last month in Brazil, prepared to support an attack potentially by Brazil and Columbia on Venezuela.

As, has now come to be expected, America pursues its Venezuelan regime change with full main stream media (MSM) cooperation, using well proven sophisticated propaganda techniques along with a variety of pretexts.

From Serbia to Iraq to Libya, where does it end? Observe that Trump is now seeking a ‘NATO alliance’ offering NATO status, to President Bolsonaro of Brazil to back the invasion of Venezuela.

So it is important to remember, as an example, that after a long war of economic and financial destabilization ended with the bombing of Serbia.

Serbia was previously a part of Yugoslavia, a country which had successfully evolved after 1945 to solve the old rivalries of the 19th and early 20th Century Balkan ethnic animosities which was, prior to the advent of power of President Tito, its past history.

The United Nations, instead of supporting, in effect, so called ‘humanitarian wars’ and ‘regime change wars’ by the US, using NATO, helped and relentlessly driven home by MSM outlets like CNN and FOX NEWS into people’s heads, must finally take a stand.

So too, Yugoslavia, once the envy of many in the world, given its then ‘non-aligned’ status under President Tito, was destroyed and broken up; ‘Balkanized’ in the early 1990s.

The Serbian assault began first by a ‘financial war’; by sanctions and finished off by an aggressive unprovoked incessant NATO bombing campaign. That’s what we can expect in Venezuela next.

This ‘Balkanization’ strategy similarly applies to Afghanistan, Iraq, Libya, Syria et al. It serves US Neocon interests to dismember States in the world and create smaller more ‘manageable’ countries.

‘Regime change’ runs against the intent, the very words contained in the US Constitution. No one in MSM ever reminds us of that fact. Nevertheless America’s ambition to overthrow other States continues, which they arrogantly now make no secret of. The next States will probably be Nicaragua then Iran to name but two.

A very noteworthy most recent outrageous unilateral declaration was made by President Trump, not yet formally agreed by US institutions, ‘giving’ something he has no authority to give; Syrian territory, the Golan Heights to be precise, to Israel. Something that one day could trigger a full scale Arab-Israeli War.

This is of extreme importance yet no real outcry comes from world leaders; well not so far.

The main reason for that decision given by senior US Administration figures is that “God anointed Trump to save the Jews”.

Not forgetting Trump’s need (which we the people don’t understand exactly why) to support Prime Minister Netanyahu in his difficult upcoming elections in Israel – in part because both countries failed to ‘regime change’ Syria – but more importantly to help the ‘financial terrorists’ who formed a company jointly that has already started drilling for oil in the Golan Heights. You might like to know who owns such oil drilling company which should answer a plethora of questions in one go that you must be asking yourselves.

The shareholder’s names tells us everything; Dick Cheney; Baron Rothschild and Rupert Murdoch. The titular heads of neocons, bankers and media on the planet.

In ending there is no more evidence required for us, the people of the world, to rise up against the globalist dark forces wherever they exist, be it in Brussels, London, France or Washington. We must demand democratic elections or start revolutions, the latter has already begun in France in the form of ‘the yellow vests’. And Brexit, by definition, is a rejection by the British people of globalism and American Hegemony.

The pattern of US destabilization and destruction of States to loot them of their sovereign resources is the unseen history of the last 100 years, not taught in any university, anywhere in the West.

As far as Ukraine is concerned, its government was taken down by the CIA and replaced by an ultra fascist regime that has full backing from America. This is no secret. But the MSM simple don’t report it.

US led NATO is ‘the transnational war machine’ of the world, devouring almost all free countries wealth. It can extort to terrorize all into conformity to the global ‘carcinogenic’ US Neocon imperialistic strategy.

A total estimated 20m people around the world have died since the end of WW11 at the hands of US Forces. Think about that for a moment.

One of the most famous sayings attributed to America’s great President Abraham Lincoln is about deception: “You can fool all the people some of the time and some of the people all the time, but you cannot fool all the people all the time.”

Liked it? Take a second to support The Duran on Patreon!
Continue Reading

Latest

‘Dark day for internet freedom’: EU approves controversial copyright reform

Julia Reda, a German MEP with the Pirate Party, described it as a “dark day for internet freedom.”

RT

Published

on

By

Via RT


The European Parliament has voted to adopt the highly controversial Article 13 provision which would govern the production and distribution of content online under the auspices of increasing copyright protections.

Tuesday’s move will update the EU’s 20-year-old copyright rules and will govern everything from audiovisual content to memes, much to the dismay of many social media users who have already begun outpouring their grief online.

MEPs passed the legislation by 348 votes to 274 Tuesday. Opponents had hoped for last-minute amendments to be made but their efforts were in vain.

Julia Reda, a German MEP with the Pirate Party, described it as a “dark day for internet freedom.”

Article 13 or ‘The Directive on Copyright in the Digital Single Market’ makes all platforms legally responsible for the content hosted and shared on their platforms.

The process of updating the bloc’s copyright laws began in the European Commission two years ago, ostensibly to protect Europe’s publishers, broadcasters and artists and guarantee fair compensation from big tech companies.

By essentially forcing companies like Google, Facebook and Twitter to pay artists and publishers for the reproduction of their work online, include in meme format, the EU is effectively clamping down on online memery.

The onus will now be on tech companies to clamp down on content-sharing on their platforms, which will likely ensure yet more draconian policing of speech and content.

EU member states now have two years to pass their own laws putting Article 13 into effect.

Tens of thousands marched in protest across Germany ahead of the vote, decrying what they viewed as severe online censorship.

Tech giant Google said that while the directive is “improved” it will still lead to legal uncertainty and will damage Europe’s creative and digital economies.

Critics have argued that the only way for Article 13 to be effectively enforced would be through the use of upload filters which automatically check content to see if it’s copyrighted or not, at least in theory. However, the exact mechanics of such a system have yet to be fully debated and the potential for abuse is immediately clear.

Liked it? Take a second to support The Duran on Patreon!
Continue Reading

Latest

The conclusion of Russiagate, Part II – news fatigue across America

The daily barrage of Russiagate news may have been a tool to wear down the American public as the Deep State plays the long game for control.

Seraphim Hanisch

Published

on

Presently there is a media blitz on across the American news media networks. As was the case with the Russiagate investigation while it was ongoing, the conclusions have merely given rise to a rather unpleasant afterbirth in some ways as all the parties involve pivot their narratives. The conclusion of Russiagate appears to be heavily covered, yet if statistics here at The Duran are any indication, there is a good possibility that the public is absolutely fatigued over this situation.

And, perhaps, folks, that is by design.

Joseph Goebbels had many insights about the use of the media to deliver and enforce propaganda. One of his quotes runs thus:

The best propaganda is that which, as it were, works invisibly, penetrates the whole of life without the public having any knowledge of the propagandistic initiative.

and another:

That is of course rather painful for those involved. One should not as a rule reveal one’s secrets, since one does not know if and when one may need them again. The essential English leadership secret does not depend on particular intelligence. Rather, it depends on a remarkably stupid thick-headedness. The English follow the principle that when one lies, it should be a big lie, and one should stick to it. They keep up their lies, even at the risk of looking ridiculous.

If there has ever been a narrative that employed these two principles, it is Russiagate.

A staggering amount of attention has been lavished on this nothing-burger issue. Axios reports that an analytics company named Newswhip tallied an astounding 533,074 web articles published about Russia and President Trump and the Mueller investigation (a number which is being driven higher even now, moment by moment, ad nauseam). Newsbusters presently reports that the networks gave 2,284 minutes to the coverage of this issue, a number which seems completely inaccurate because it is much too low (38 hours at present), and we are waiting for a correction on this estimate.

Put it another way: Are you sick of Russiagate? That is because it has dominated the news for over 675 days of nearly wall-to-wall news cycles. The political junkies on both sides are still pretty jazzed up about this story – the Pro-Trump folks rejoicing over the presently ‘cleared’ status, while of course preparing for the upcoming Democrat / Deep State pivot, and the Dems in various levels of stress as they try to figure out exactly how to pivot in such a manner that they do not lose face – or pace – in continuing their efforts to rid their lives of the “Irritant-in-Chief” who now looks like he is in the best position of his entire presidency.

But a lot of people do not care. They are tired.

I hate to say it (and yes, I am speaking personally and directly), but this may be a dangerous fatigue. Here is why:

The barrage of propaganda on this issue was never predicated on any facts. It still isn’t. However, as we noted a few days ago, courtesy of Fox News’ Tucker Carlson, at present, 53% of US registered voters believe that the Trump campaign worked with Russia to influence the 2016 election.

That means 53% of the voting public now believes something that is totally false.

Many of these people are probably simply exhausted from the constant coverage of this allegation as well. So when the news came out Sunday night that there was no evidence of collusion and no conclusive evidence, hence, of obstruction of justice by the Trump Administration – in other words, this whole thing was a nothing burger – will this snap those 53% back into reality?

Probably not. Many of them may well be so worn down that they no longer care. Or worse, they are so worn out that they will continue to believe the things they are told that sustain the lie, despite its being called out as such.

C.S. Lewis wrote about this peculiarity of human nature, in particular in the seventh book of his Chronicles of Narnia. After a prolonged and fierce assault on the sensibilities of the Narnians with the story that Aslan, the Christ figure of this world, was in fact an angry overlord, selling the Narnians themselves into slavery, and selling the whole country out to its enemy, with the final touch being that Aslan and the devilish deity of the enemy nation were in fact one and the same, the Narnians were unable to snap back to reality when it was shown conclusively and clearly that this was in fact not the case.

The fear that was instilled from the use of false narratives persisted and blocked the animals from reality.

Lewis summarized it this way through the thoughts of Tirian, the lead character in this tale:

Tirian had never dreamed that one of the results of an Ape’s setting up as a false Aslan would be to stop people from believing in the real one. He had felt quite sure that the Dwarfs would rally to his side the moment he showed them how they had been deceived. And then next night he would have led them to Stable Hill and shown Puzzle to all the creatures and everyone would have turned against the Ape and, perhaps after a scuffle with the Calormenes, the whole thing would have been over. But now, it seemed, he could count on nothing. How many other Narnians might turn the same way as the Dwarfs?

This is part of the toll this very long propaganda campaign is very likely to take on many Americans. It takes being strongly informed and educated on facts to withstand the withering force of a narrative that never goes away. Indeed, if anything, it takes even more effort now, because the temptation of the pro-Trump side will be to retreat to a set of political talking points that, interestingly enough, validate Robert Mueller’s “integrity” when only a week ago they were attacking this as a false notion.

This is very dangerous, and even though Mr. Trump and his supporters won this battle, if they do not come at this matter in a way that shows education, and not merely the restating of platitudes and talking points that “should be more comfortable, now that we’ve won!”

The cost of Russiagate may be far higher than anyone wants it to be. And yes, speaking personally, I understand the fatigue. I am tired of this issue too. But the temptation to go silent may have already taken a lot of people so far that they will not accept the reality that has just been revealed.

Politics is a very fickle subject. Truth is extremely malleable for many politicians, and that is saying it very nicely. But this issue was not just politics. It was slander with a purpose, and that purpose is unchanged now. In fact things may even be more dangerous for the President – even risking his very life – because if the powers that are working behind the people trying to get rid of President Trump come to realize that they have no political support, they will move to more extreme measures. In fact this may have already been attempted.

We at The Duran reported a few months ago on a very strange but very compelling story that suggested that there was an attempted assassination and coup that was supposed to have taken place on January 17th of this year. It did not happen, but there was a parallel story that noted that the President may have been targeted for assassination already no fewer than twelve times.  Hopefully this is just tinfoil-hat stuff. But we have seen that this effort to be rid of President Trump is fierce and it is extremely well-supported within its group. There is no reason to think that the pressure will lighten now that this battle has been lost.

The stakes are much too high, and even this long investigation may well have been part of the weaponry of the group we sometimes refer to as the “Deep State” in their effort to reacquire power, and in their effort to continue to pursue both a domestic and geopolitical agenda that has so far shown itself to be destructive to both individuals and nations all over the world.

Speculation? Yes. Needless? We hope so. This is a terrible possibility that hopefully no reasonable person wants to consider.

Honestly, folks, we do not know. But we had to put this out there for your consideration.

Liked it? Take a second to support The Duran on Patreon!
Continue Reading

JOIN OUR YOUTUBE CHANNEL

Your donations make all the difference. Together we can expose fake news lies and deliver truth.

Amount to donate in USD$:

5 100

Validating payment information...
Waiting for PayPal...
Validating payment information...
Waiting for PayPal...
Advertisement

Advertisement

Quick Donate

The Duran
EURO
DONATE
Donate a quick 10 spot!
Advertisement
Advertisement

Advertisement

The Duran Newsletter

Trending