The sluice gates for Russia fund flows look set to be turned on as the trickle grows stronger.
Weekly fund flow by fund trackers Emerging Portfolio Fund Research (EPFR) indicates that institutional investment sentiment may be turning towards Russia. In the week to April 29, Russia dedicated funds reported posted inflows of $122m.
While still not a vast amount, the total is exceeds the flows going into Brazil funds for the first time this year. Last week, Brazil funds took in $47m while India funds recorded inflows of $33m. China funds continue to set the benchmark for the BRIC countries and again topped the list of country inflows with a reported $389m.
Russia funds have now reported net positive inflows for seven straight weeks, albeit the weekly amounts until this week have been relatively modest.
Year to date, and despite the fact that Russian equities have been amongst the best performing major assets within the MSCI Indices, these weekly funds have only taken in a net $178 m. That compares with $1.5 bln each for Brazil and China funds.
Chris Weafer, chief strategist at UralSib, believes the risk appetite for Russian equities has improved due to the sustained price of $50 for crude oil and general optimism that the recession in the global economy may be close to bottoming out.
Weafer said: “The big danger for investors, therefore, is that if the optimism towards global growth continues to build, and oil holds at the $50 p/bbl level, then there might easily be another spike up in equity prices in Russia to close the valuation gap with Brazil. That would imply another 50% up for the RTS."
"Hence, those investors are, albeit with only a couple of weeks of evidence thus far, becoming nervous of their generally neutral to underweight position in Russia today.
Business at Moscow’s two main stock exchanges also seem to be returning to normal following the savaging inflicted on trading levels in the last quarter of 2009.
The dollar-denominated RTS and the ruble-denominated Micex were both suspended more than 30 times since September. As a result, investors turned to trading Russian global depositary receipts in London.
Daily trading volumes in Moscow slumped to $2 billion from the $7 billion reached early in 2008 as investors decamped to the relative safety of buying and selling Global Depository Receipts of Russian companies in London.
Prior to the financial meltdown, Russian exchanges had 70% of the value of equities traded against London's 30%.
RTS Chief Executive Roman Goryunov recently said March trading volumes indicated Moscow had won back territory ceded to London.
Goryunov said neither of the local exchanges had been suspended since the regulator introduced rules on March 1 that formalized when trading can be halted and allowed greater shifts in prices before a market is suspended. Along with higher oil prices and a stronger ruble, the new rules helped trading volumes to bounce back to pre-crisis highs.
One Western fund manager told me Russia's stock market had been penalised for its "basket-case behaviour" of last year. "The straps have come off the patient in the asylum," explained the fund manager. "It looks like Russia is close to getting the all clear to participate in the global capital markets as a sane and responsible participant."
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