By Jason Corcoran in Moscow
Russia's RTS stock index has doubled in value since the beginning of the year, making it the best performing major world index, but foreign investors are still lukewarm on Russia's investment case.
The benchmark RTS 50 Index hit 1,254 points at close of play today, which took its year-to-date gains to 100%. Comparable indices such as MSCI Emerging Markets Index, Shanghai Composite, Bovespa, and S&P 500 showed respectively a 59.2%, 51%, 63%, and 18% growth for the same period according to MarketWatch.
Yet the latest country fund analysis from fund trackers EPFR Global confirms that international investors retain a generally wary stance towards Russia. In spite of the huge market rebound in Russian stocks, they have chosen not to commit any significant new money to increase Russia exposure beyond that required to stay close to a neutral weighting in GEM funds relative to the performance benchmark.
According to UralSib, Russia funds took in new money flows during the first half of the year of only $643m, while China funds took in $4bn and Brazil funds added $2.9bn of new money.
One Central European fund manager at today's VTB Capital Russia Calling forum in Moscow said many of the large regional fund were massively underweight in Russian stocks. "We have been buying some of the proxies Sberbank and Gazprom to capture the upside but there are too many skeletons lurking in the mid tier stocks to warrant further investment," he said.
Investment managers at the conference cited the latest installment of the Telenor-Altimo dispute as one reason to justify a higher Russia equity risk premium for many international portfolio investors. The Norwegian mobile operator Telenor failed to put an end to its Siberian court saga after its appeal against a $1.7bn fine was adjourned today for six months.
The adjournment of the case, over a fine payable to Russia's second biggest mobile operator Vimpelcom threatens the loss of Telenor's Russian business.
Telenor has been engaged in a protracted dispute with its co-investor Alfa, which owns 44% of Vimpelcom for several years. Their original disagreement was focussed on their strategy in Ukraine, where VimpelCom competes with Telenor-controlled Kyivstar.
Investors suggested the case was a cautionary tale for foreign firms considering joint ventures with Russian corporates. "You have to be very careful about choosing who to dance with in Russia," said a hedge fund manager who is a veteran Russian investor.
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