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State Street Is ’Re-Risking’ Emerging Markets, Lacaille Says

Fund managers are abandoning their bearish outlook and “re-risking” capital in Russia and other emerging markets where stocks are cheaper than in developed nations, said Richard Lacaille, chief investment officer at State Street Global Advisors, which oversees $2.1 trillion.

“In terms of Russia, the valuations look cheap and we have been overweight in our exposure because of the cheapness,” Lacaille said in an interview at Troika Dialog’s annual investment conference in Moscow today. “We are very aware of the risks and the fact that the cheapness stems from a number of things.”

Lacaille, in his first visit to Russia in five years, said State Street Global Advisors, based in Boston, has “several billion” dollars of client funds invested in Russian equities through “active and passive” investing strategies. “Russia is not a specific unique story,” he said. “It’s part of the overall re-risking coming back on.”

Russian stocks are the least expensive of the BRIC countries, with the 30 stocks in the benchmark Micex Index trading at 5.7 times earnings. That compares with a ratio of 16 for India, 12.2 for China and 10.6 for Brazil, data compiled by Bloomberg show. The Micex was little changed today at 1,541.93, near the highest level since September, at 3:38 p.m. in Moscow.

Russia can close the “cheapness” gap more quickly if it takes more aggressive measures to address investor complaints on issues such as corruption and excessive bureaucracy, Lacaille said. The government should overhaul the pension system, its corporate governance rules and improve its markets institutions ”simultaneously,” he said.

Addressing the “perception and the reality of corruption,” as Prime Minister Vladimir Putin has been doing in his campaign to return to the presidency, are “very important” for closing the valuation gap between Russia and other emerging markets, Lacaille said. Putin is seeking to return to the Kremlin after four years as premier in elections March 4.

To contact the reporter on this story: Jason Corcoran in Moscow at

To contact the editor responsible for this story: Frank Connelly at

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