No More Biznes As Usual In Russia

A new breed of analyst is taking the guesswork out of investing

Frustrated after Syktyvkar Timber's management stubbornly refused her requests for information, securities analyst Marina Oganesian flew to the company's annual meeting in Russia's northern Komi Republic last spring. Striding to the head table, Oganesian, 26, plunked down a report she had written based on the trade press, employee newsletters, and visits to government research institutes. Company managers leafed through it, then broke into smiles. Praising her initiative, they swept her off to a vodka-soaked lunch with the chief executive. Now, she gets what she needs by phoning from her desk at Moscow's Troika Dialog brokerage.

Until recently, investors in Russian companies had to fly blind. But a new group of analysts, mostly young Russians like Oganesian, is prying the lid off secretive companies. In the absence of U.S.-style disclosure rules, most Russian companies hand out little information, and few follow international accounting standards. Managers often see analysts as agents of hostile forces trying to wrest control from them. Says Par Mellstrom, who heads the research department at Moscow's Brunswick Brokerage: "You have to go out and find the data. It doesn't come to you."

Indeed, the analysts are helping usher in a new wave of investing in Russia's hot equity market. Their increasingly detailed research, done in departments that are independent from brokerage sales forces, has boosted foreign investors' confidence and helped stocks more than double since last year.

Most research departments--even London-based ones--rely mainly on Russian analysts for legwork, figuring they have better contacts, a stronger grasp of corporate culture, and better antennae to detect political mood swings. Few have formal education in business and finance, though. Most are twentysomethings who switched from other professions ranging from journalism to physics, then gained research skills under Western managers.

The analysts' ranks are growing as Russian and Western-owned brokerages and banks beef up their research. Competition is keen. Base pay ranges from $30,000 to $40,000 a year, fantastic by Russian standards, and bonuses can easily double that. A few stars earn $200,000. Fund managers are impressed. "A significant factor in the increased foreign portfolio interest in Russia is the higher-quality research," says James Dannis, head of Salomon Brothers' Russia operations.

RISKY BUSINESS. Analysts are also nudging more companies toward becoming investor-friendly. Mosenergo, Moscow's local power company, now sends quarterly reports to investors. It's among 11 Russian companies trading American depositary receipts, and analysts often remind managers about their success as evidence that disclosure pays off. But they have made little headway in the metals industry, which is heavily controlled by the government and riddled with special deals between managers and traders. Power struggles within newly privatized companies also give analysts headaches. "If there is a battle for control, you can't get information," says Taco Sieburgh Sjoerdsma, research director at United Financial Group, a Russian investment bank partly owned by Paribas Capital Markets.

Despite such difficulties, some analysts get the goods through personal ties with executives. "If you have not drunk with a Russian oil and gas man a couple of times, he doesn't know you," says Alexander Blokhin of United Financial Group. But that's only half the battle. Many companies are run by Soviet holdovers who need a crash course in market economics. Konstantin Chernyshev, an analyst at Moscow's Rinaco Plus brokerage, tells of a telephone executive who announced he wanted to sell his company's stock at $12 a share. Why? He had visited a phone company in the U.S. whose shares traded at that price.

After honing their skills on blue chips, the analysts are turning to second- and third-tier companies that are increasingly coming to market. But it's still risky. The equity boom has withstood Boris N. Yeltsin's illness and economic malaise. But Russia's market remains small and heavily dependent on foreign investors who could easily flee. If the market dives, Russia's star analysts may get their first real chance to shine--by picking the stocks that could help investors ride out the slump.

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