With President Medvedev spelling out the need to improve Russia’s investment climate Business RT spoke with David Denning head of client services at Wermuth Asset Management about how global investors see Russia.
The President proposed eliminating Government Ministers from the board of directors of state companies, pushing the privatization programme over the next three years, and opening up information about state companies to make them more transparent.
RT:How effective will these proposals be to encourage investors into Russia?
DD:“Well I think in general right now the investment climate in Russia is improving in the eyes of foreign investors.These three initiatives are very positive, but again the problem Russia has with these kinds of issues is that they need to be followed by actions.I think that it is very positive to have independent directors, I think it is also a kind of promotion of this initiative to increase the appetite for Russian equities of foreign investors. Wermuth Asset Management is very supportive of this.”
RT:Why aren’t enough people investing in Russia now?
DD:“I think, currently, after the 2008 crisis, it was really hard to attract investors back to Russia.A lot of investors were burnt, there was a lot of very bad stories on the corporate governance side.I think now it is starting to pick up.We’ve seen a couple of investors into our funds late 2010 and early 2011, and I think, just because of a couple of global themes that are happening right now, Russia has become a place for people to reallocate their money.So you will definitely see that in the next coming year, 2011, and hopefully into 2012.I think drivers for that in Russia are many – there is the 2014 Olympics, 2018 World Cup.These are events that will hopefully really change the country, and the investment appetite amongst foreign investors.”
RT:How important is improving corporate transparency?
DD:“I would say that transparency is huge and along with that comes corruption.The corruption problem is obviously well known amongst all foreign investors, and that is an issue that is going to have to be tackled. I wouldn’t want to have to tackle that job single handedly, so it is probably going to have to take some very big initiatives.That means punishing people that have committed crimes and corrupt acts, and basically making sure that these companies are transparent.You have to get independent directors in there, that’s a great initiative, and Medvedev seems to be on the right track.”
RT:Where do you see the upside for investment in Russia?
DD:“Right now we see the upside in the electricity sector in Russia.There is a big reform happening in the electricity sector which we are part of. We definitely have our experts on the ground that have been following this sector for 12 years now, and we see a lot of opportunity there. Companies are trading at multiples very low to other emerging markets for example in Brazil where a similar sector reform is happening.And we see that as one sector that we are very concentrated on and hope to make a lot of money on.”