"Russia has never been in better shape!" These are the words of Marcus Svedberg, Chief Economist of East Capital who made his first ever visit to Australia this week to meet with potential and existing investors. With the Eurozone already in recession, and likely to remain so for some time to come, Russia is looking increasingly attractive from an investment perspective due to its strong economic fundamentals:
- Steady GDP Growth (currently hovering around four percent p.a.) driven by high oil prices and buoyant domestic demand
- Inflation close to an all-time low (also around four percent) with falling food prices and decelerating monetary growth
- Enlightened monetary policy via a flexible RUB and inflation targeting
- Excellent public finances - a small budget surplus in 2011, low levels of debt (10 percent) and large reserves
- Strong domestic consumption driven by rising incomes, low inflation, almost non-existent personal debt (the average Russian has a mortgage of 130 Euro compared to 12,370 Euro in the Eurozone!) and rapidly increasing numbers of aspirational, cashed-up and upwardly mobile middle class consumers
- Accession to the WTO will boost GDP and open up the economy for global trade
- Russian oil companies have started to pay dividends for the first time (but remain undervalued)
- New political and economic reforms promised by Putin under pressure in the run up to the Presidential election this weekend are encouraging and long overdue.
East Capital's Russian Fund is up 22 percent so far in 2012 and expected to rise further after the Presidential election. The market remains cheap and valuations are at rock bottom with the chances of a re-rating at some stage. Investors should look closely at Russia now to get in before the rush. View the vodcast here.