This summer Russia finally secured entry into the World Trade Organisation. Its accession will mean lower import and export duties, opening up the country to international competition and greater transparency, and, according to the World Bank, could eventually mean an extra $177bn a year to the economy.
Membership boosted China when it joined in 2001. So is this a good time to invest in Russian equities?
Deutsche Bank Private Wealth Management UK’s Chief Investment Strategist, Paul Wharton, says: “Russia doesn’t have the necessary corporate governance to justify the risks. You can too easily find you don’t actually own the assets you think you own, and enforcing property rights is too difficult.”
For Wharton, the heavy dependence on commodities is also a risk.
“Russia is a leveraged play on oil and gas prices, but the world economy is slowing. We are seeing fracking from Oregon to Morecambe Bay – the supply side of gas is looking healthy, and that is not good for Russia.”
He concludes: “This is a classic example of a country whose exotic allure should be resisted – for now at least.”
Key facts
— Russia was ninth in the World Economic League table last year. By 2020 it is expected to be fourth.
— In 2011 Russia exported $522bn in goods and $54bn in services.
— Russia is the world’s biggest oil producer and second-biggest supplier of natural gas. It holds the world’s largest natural gas reserves and the second-largest coal reserves.
— Public debt is just 12% of GDP.
— The IMF predicts real GDP growth at around 3.7% in 2012, but the economy is slowing.
— Inflation is rising – up to 6.6% in September.
Source: DB Research, Centre for Economics and Business Research, World Trade Organisation and World Bank.
Deutsche Bank Research’s Russian specialist, Dr Jan Strasky, says:
“ Hopes of political liberalisation after presidential elections earlier this year have been dashed. Putin shows little appetite for the reform many of us see as an essential investment prerequisite.”