Russian holdings ‘still viable’, say majority of investors
The appetite for investing in Russian companies is still high despite the country’s faltering economy and difficult political situation, according to an AT Kearney survey.
In the Washington consultancy’s study of 500 business leaders around the world, more than half say they are planning to ‘significantly or moderately’ increase investments into Russia over the next year – if the Ukraine conflict ends, economic sanctions are lifted and the geopolitical landscape improves. Exactly 50 percent of respondents also say they still see the country as a ‘viable’ environment for investment.
Elsewhere in the study, known as the Foreign Direct Investment Confidence Index, Russia fails to feature in the top 25 destinations for capital. The country was 11th most popular in 2011 and finished sixth in 2005, but this year apparently safer havens – including Sweden, Italy and Germany – finish higher up the ranks.
Vladimir Zaluzhsky, mining firm Severstal’s head of IR, says there are many factors that might undermine the potential of Russian investment. ‘Sharp decline in the oil price, economic recession and sanctions are all more significant obstacles,’ he notes. ‘Also, index investing in Russia is less relevant at the moment than before; now one needs to be very selective, as the weakness of the ruble is having different effects on companies. Exporters are feeling better, for example, while local retailers are suffering.’
The head of IR at Moscow Exchange, Sergey Klinkov, adds that there are a number of reasons for investors to be optimistic. ‘Recently we have seen a recovery in oil prices, a strengthening of the ruble and calmer news flow coming from Ukraine on the back of the Minsk II agreements, all of which have helped to raise market sentiment,’ he says. ‘Taking a longer-term view, many investors appreciate the reforms to Russia’s financial infrastructure in recent years that have made the Russian market more attractive.’
These reforms include the introduction of a central securities depository and migration to a new settlement cycle for equities, Klinkov explains, as well as a new corporate governance code and new listing rules at the Moscow Exchange.
He also says Russian IR teams are well equipped to attract foreign investors, particularly when they focus their marketing efforts on roadshows, investor meetings and conferences. ‘I believe maintaining long-term focus, staying open, under-promising and over-delivering is the most efficient way for companies to attract investors,’ he concludes.
The outlook in Russia will undoubtedly have an effect on IR in the region, Zaluzhsky adds. ‘For IR it means a more stressful environment, as declining investor appetite for Russian stocks translates into weakening importance of the IR function for the corporates, especially with state ownership,’ he explains. ‘We may see a shrinkage of IRO numbers in Russia.’