Russia's fading appeal as an investment destination
Amin Rajan, Create
Investors consider Russia to be a "one trick pony" dependent on its natural resources
As the EU and US firm up sanctions packages in response to Russia’s role in the Ukraine conflict, analysts are debating the future of the region as an emerging market investment destination.
Amin Rajan, CEO of CREATE Research, describes Russia’s economy as a “one trick pony”, based purely on natural resources and lacking “institutional strength”. He says that Russia is seen by investors purely as an “opportunistic market”. There is a severe reluctance to take a favourable “buy and hold” five-year view of Russia.
The latest annual CREATE Research Survey of institutional investors shows Russia as the least likely of emerging markets to offer the best returns within the next three years, with only 8 per cent of respondents expecting otherwise.
This is due to Russia “growing sub-par from the middle of the last Century,” believes Mr Rajan, while the increasing self-sufficiency of neighbouring countries in terms of energy and oil supplies will eventually cripple the Russian economy.
Russia relies on Ukraine as the primary transit corridor for oil exports, with 80 per cent of flows to the EU currently directed through Ukrainian territory.
When Putin’s popularity drops, it is going to drop dramatically
“Russia has no institutional strength; it is pretty much run by a dictator,” says Mr Rajan. “When Putin’s popularity drops, it is going to drop dramatically.”
Investment expert James Bevan of CCLA suggests it is tricky to agree a set of measures that could "move the dial" on Russia, because of the impact on Western economies, but that lack of action is potentially more dangerous.
"The longer the troubles persist, quite apart from the obvious humanitarian crisis for those directly involved, the greater the risks for Europe's economy and markets," says Mr Bevan.
