Russian efforts to forge an empire are making the country a less attractive investment than its former Soviet allies, according to Firebird Management LLC.
Georgia, Kazakhstan and the three Baltic nations are less risky than Russia, whose economy probably entered a recession this quarter, Ian Hague, a founding partner of New York-based Firebird, said Aug. 4 in an interview. The company, which manages $600 million of stocks, has cut its Russian exposure this year to 40 percent from 55 percent, he said.
Russia’s $2 trillion economy has ground to a halt after U.S. and European sanctions in response to the annexation of Crimea and allegations President Vladimir Putin’s government is stoking Ukraine’s separatist unrest. While Russia faces a 50-50 risk of recession, according to a July survey by Bloomberg, Georgia’s economy expanded 7.1 percent from a year earlier in the first quarter and Kazakhstan’s grew 3.8 percent.
“If Russia stops trying to build an empire it could become a much more attractive investment,” Hague said. “Assets are very cheap in Russia but investors are not interested until they see policy going the right way.”
Russia’s dollar-denominated RTS stock index has plunged 19.5 percent this year, leaving it 60 percent cheaper on a price-to-earnings basis than the MSCI Emerging Markets Index, the biggest discount since last June. The ruble is 9.2 percent weaker against the dollar, the second-worst performer among 24 emerging-market currencies tracked by Bloomberg after the Argentine peso.
Sanctions have intensified capital flight from Russia, which NATO accuses of massing a potential invasion force of as many as 20,000 troops on Ukraine’s border. Most recently, the U.S. and the European Union have targeted Russia’s defense, oil and banking industries.
Georgia’s financial industry is “booming,” according to Hague, who cited stocks such as Bank of Georgia, where he’s served on the board, and recently listed TBC Bank. (TBCB) Kazakh lenders are recovering after being damaged by a real estate bubble, while there are some “very well-run” small companies in the Baltics, Hague said.
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