When it comes to bringing long-term, tangible benefits for investors, Russia is showing a large amount of great opportunities. So which industries will prove most attractive for investment? Kendrick WHITE, Head of Investment Consulting Company Marchmont Capital Partners, gave WEJ some insight on the process.
Kendrick, in your opinion, do foreign investors find Russia attractive nowadays?
Well, as you know, oil prices have the greatest impact on investment decisions in Russia, speaking from a macroeconomic point of view. So if there is conflict in the Middle East, it can raise these prices and attract the attention of potential investors. On the other hand, though, the current downward spiral of the European Union could lower oil prices, and that volatility in the European economy could reduce the demand for US products as well. This will slow the process of recovery in the States, leading to a global stagflation and a drop in oil prices, up to 50 - 60% from its current levels. Looking at all these possible outcomes, it’s clear that there is a large amount of uncertainty in the economic future of Russia. And to add to that, investors today have no way of knowing which direction Russia will choose to go in – whether it will change its strategy or continue to rely on its oil and gas industries.
So in that case, would investors wait until the situation becomes clearer?
Looking again from a macroeconomic point of view, Russian equity investments are relatively inexpensive, and the government provides favorable statistics concerning its ratio of debt to GDP and the levels of consumer debt. As a result, long-term prospects for Russia are extremely positive from certain perspectives. But the present day uncertainty discourages large-scale investments.
And what kind of strategy are investors choosing while the market remains uncertain?
Now, they are trying to simply diversify their portfolios on the market. When investors compare Russian securities in this region with assets in East Asia, China, and Latin America, they discover that Russia offers a very good investment opportunity which, when combined with specific macroeconomic and local factors, can yield substantial benefits in the future. In comparison to other emerging markets, the opportunities Russia presents may be less risky.
Do you think foreign investors face any special problems in Russia?
I think the majority of international investors face the same problems that local independent business owners deal with – excessive monopolizing, government interference in private business, a weak institutional protection of property rights (including intellectual property), and the list goes on. Because of this, I believe that investors should not overlook stereotype prejudices in foreign markets. In any system, there are obstacles and difficulties for any private investor, in Russia or in any other country.
Which industries are most attractive for investors today?
Investors looking for investment opportunities in Russia should seriously consider infrastructure and the alternatives in the transitional economy, which can yield significant benefits. I’m specifically referring to technological companies, such as Yandex – although the company is Russian, it has the potential to contribute greatly to the developing world IT market. Overall, I believe that investors will be interested in investing with certain U.S. securities and using the dollar. If you compare the United States with China, Russia, and other emerging markets, the U.S. offers the highest and best long-term development opportunities, provided by American high technology and its innovative economy.
In your opinion, which sectors should investors pay attention to within the next five years?
I personally prefer investing in new and innovative industries, so I would invest in information technology, environmentally safe technology, biotechnology, and life-expectancy research. Russia has many interesting and innovative projects and ideas, and I am convinced that, in the next five years, these new fields will become very profitable.
Text: Anastasia Yakovleva