Russia and emerging market investment flows
RT:The Russian market is currently undervalued, compared to other BRIC countries. Why are we not seeing a significant capital inflow?
MJ:“Yes it is undervalued, I guess part of the problem was really that the growth outlook for Russia is a little bit softer than for some of the other emerging market countries.This is largely relating to supply side shocks emanating from the drought, and also there were fears that because of the inflationary pressures you would have some monetary tightening going forward.So there were these two factors that did come into play.Also you have to remember that Russia is really a cyclical play on world growth, and there was expectation that global growth is going to sluggish and so oil prices in particular will remain subdued, or would not rise.These two factors have hurt Russian growth expectations, but that should change going forward.”
RT:What should be done to make Russia more attractive to investors compared to other BRICs?
MJ:“I think a lot is being done already, and there are obvious things, such as the WTOmembership, which might come through, which will really help boost Russia’s attractiveness.Also, over the longer term, you know, efforts are being made to build up on infrastructure – economic and legal infrastructure – in the country. Also efforts are being made to improve education and other such socioeconomic indicators.I think all of these factors together will add to the attractiveness of Russia as we go along, and, indeed, of course, as the world trade cycle recovers, as you have stronger commodity prices coming through, in particular oil, you will see the attractiveness of Russia continue to rise.
RT:Will emerging markets remain in favour – given the euro crisis and the US printing of money?
MJ:“Well definitely, yes, I think that as you said, a there is a lot of money sloshing around in the system right now.There is a lot of liquidity and that liquidity is looking yield, and that yield is really available in emerging markets.Not just the yield, but also the structural story in emerging markets is a lot more attractive, than it is in developed markets.We are expecting growth of at least 6% over the next two years in emerging markets, whereas growth in developed markets is a lot slower – around 2% or thereabouts – so overall the picture is a lot more attractive in emerging markets and that story should sustain over the coming periods.”