Emerging managers snap up cheap Russian stock

Among emerging market fund managers, all eyes are currently on Russia’s oil giant, Yukos, and its imprisoned former chief and largest shareholder, Mikhail Khodorkovsky, whose trial on tax evasion and fraud charges has commenced in Moscow.

Investment houses such as Schroders, recently voted as the most used mandate provider in PWM’s poll of European distributors, have used the collapse in the oil company’s share price to buy up more Yukos stock.

“The Yukos issue is creating a lot of instability,” said Leila Kardouche, who runs more than $600m in Russian and Eastern European money for Schroders. “There has been a huge sell-off in shares, which is negative for Russia plc, but the Kremlin will not resolve this with bankruptcy. There are easier ways to get Mr Khodorkovsky out of Yukos.”

She is referring to an agreement made by Russia’s president Vladimir Putin with the group of six “oligarchs”, allowed to keep assets cheaply acquired during the Yeltsin era in return for their promise not to interfere in politics.

Media tycoons Vladimir Gusinsky and Boris Berezovsky were forced to leave Russia after failing to comply. Mr Khodorkovsky’s arrest coincided with his public support of Russia’s opposition parties and strong rumours he would stand for presidential elections after retiring from business in 2008.

Ms Kardouche expects Mr Khodorkovsky to accept an 18-month prison sentence, rather than the 10-year maximum, and to pay off Yukos’s tax liabilities, before selling his stake. She said economic growth outweighs political risk and private investors can safely invest 3 to 5 per cent of their portfolios in emerging Europe.