“There is a lot of transparency risk there. But I would argue that's already in the price, and the price is still cheap,” said Philip Poole, London-based global head of macro and investment strategy at HSBC Global Asset Management.
“We focus on larger-cap stocks (in Russia), which tend to have better transparency than others,” said Allan Conway, head of global emerging equities at Schroder Investment Management Ltd., London. To avoid any custody concerns, Schroder invests only via depository receipts, traded on exchanges outside Russia.
Maarten-Jan Bakkum, global emerging markets equity strategist at ING Investment Management, The Hague, Netherlands, said: “Politically, things don't look that bad. It seems they're becoming more friendly to foreign investors.”
Bond investors also find the Russian market attractive. “We think it's trading cheap compared to its rating,” said Cristina Pan-ait, senior vice president and senior emerging markets strategist at bond specialist Payden & Rygel in Los Angeles.
But not everyone is sold on Russia's prospects. Other managers say corruption clouds out any possibility of foreign investment. “You have to be careful about investing in Russia because its perhaps not the degree of level playing field that investors would want,” said one emerging markets manager who requested anonymity.
Jeremie Le Febvre, managing partner at private equity advisory firm and placement agent Triago, Paris, added that Russia is a “relatively unfriendly environment to do private equity today.” Whereas China has cut red tape and developed a more private equity-friendly environment over time, Russia has not. “One could have expected Russia to be more private equity-ready, which clearly isn't the case.”
Similarly, David de Weese, partner at Paul Capital, New York, said, “We are quite concerned about the level of corruption and lack of a robust rule of law (in Russia).”
Here is a look at other picks and pans among emerging markets.