Obviously everybody hopes that the tensions in Russia remain just that tensions! However how has this impacted financial markets and in particular the Russian Stock Market and if there is an opportunity there how would an individual take part in such an obscure market.
Is there an opportunity in Russia?
There may well be a significant opportunity for growth by investing in the Russian stock market. The FT has a quote that says it has fallen so much that the market is pricing in everything including Stalin coming out of the grave and running the country again.
But market flows also suggest that there is something happening. Even though the main Russian index is down over 20%, almost as much money flowed into Russia in the first two weeks of March than left Russia in the first two months of the year.
The market itself is very cheap when you look at it from all angles. This is a case of either the market went too far with the expected threat of war and economic sanctions or the market has got it right and the sanctions and potential war will decimate investors.
On paper this looks like a no brainer. But caveat emptor!
Why would an investor need to beware?
Two reasons corruption and state interference. It isn’t what we would call the most transparent market in the world and is therefore very open to a few brown envelopes.
But also the largest companies are state owned. GAZPROM for example makes up 25% of the indices. This is a state owned company.
My recommendation for anybody brave enough to venture into this market would be to use an active manager as opposed to just tracking the index.
By having somebody who is actually doing some due diligence on the companies before buying the stock you may be somewhat insulated from the corruption but secondly if you just buy the index you will end up with about 60% of your money invested in energy stocks. If you want to invest in energy I’d suggest there are better ways of doing it.
How can an Irish individual invest in Russian?
You could go out and buy an individual Russian stock but that is really turning up the volume on the risk you are taking.
For reasons already outlined I would suggest buying an actively managed fund.
Finding an actively managed fund may also prove difficult. If you have a stockbroker they may have an index they can offer but that’s not what I would recommend, push them for an active fund.
The life companies have funds with some exposure to Russia but these funds tend to have less than 10% of the fund invested in Russia.
There is one Russian fund that if I were mad enough to chase the market I would go for. As a retail investor you will need to access it through a platform. It is a BNP Paribas fund.
What type of returns could you somebody expect.
The Russian market is trading at similar levels to where it was at when Lehman’s collapsed. So there is potential for considerable growth here, even if you got the 20% that the market recently dropped by it may prove to be a good “punt”. In the last ten days the BNP Paribas fund is up nearly 7%.
Investors need to have a stomach for this though. For example one particular fund lost 70% in 2008. It did however make 130% in 2009, but this is the type of ride people need to be willing to take.
Money invested in Russia should come from your “big risk, big loss/return” bucket.
Where to from here?
If you are an existing client and you are interested and have the stomach to move some of your existing allocation to this fund or if you would like to introduce new money into it please contact me on firstname.lastname@example.org or 0876445533 and we can discuss it further and in particular its suitability to you.
Or of course if you have no money invested with us we always welcome to opportunity to chat to new clients.
This is a link to the interview I did with Ian Guider on www.newstalk.ie this morning (25/3/2014) on this subject. Click the little play button to the left and listen for the piece from about 15mins 35 seconds.
It should be taken into account that this blog should not be taken as advice and you should seek professional personal advice prior to investing in any fund.