LONDON: A $2 trillion economy, a seat at the top table of world powers and a stock market that trades at valuations cheaper than Pakistan - G20 host Russia is still struggling to gain the trust of international capital.
Despite years of reform pledges, several privatisations and an apparent tick up in the global growth outlook, Russian shares trade only around five times expected earnings for the coming year, approaching depths plumbed during the 2008 market crash.
That's less than half the average for emerging market peers, many of whom Russia is hosting this week at the Group of 20 nations meeting in Moscow.
Given that the G20 chair is charged with forging consensus on economic governance among the world's leading economies, there is an irony in it being one of the least trusted investment destinations of its peers - at least as reflected by prices and demand.
Even if one accounts for the commodity firms that make up most of the index and generally trade at a discount to retailers and banks, valuations are well below Russia's own past average.
Most will attribute this, with some justification, to Moscow's past record of expropriations, weak corporate governance and the Kremlin's heavy-handed involvement in the economy.
All this has been driving tens of billion dollars in capital to flee from Russia every year. But investors also point to prosaic factors such as the lack of a domestic capital base that leaves markets exposed to the vagaries of global risk appetite.
Russia is also overwhelmingly reliant on oil which provides over half of budget revenues. As a result, those betting on valuation re-ratings for returns, have had their hopes dashed year after year.
"People who have been watching Russia for a long time are feeling a real sense of frustration," says Jose Morales, chief investment officer of Mirae Asset Global Investments in New York.
"Some people point to the valuation discount as a reason to buy but that is a structural discount that will not disappear until we see some really significant progress on reforms."
Fund managers such as Morales do acknowledge improvements - above all this month's move to ease foreigners' access to domestic bond markets, which Barclays estimates could lead to $40 billion in capital inflows in 2013-2014.
But any faith in the Kremlin's reform pledges suffered a blow last year when state-run Rosneft took over oil firm TNK-BP, grabbing control over 40 percent of Russian oil output.
The oil sector's consolidation around Rosneft was a clear sign that Russia retains its proclivity for state intervention, says John-Paul Smith, head of emerging equity strategy at Deutsche Bank, who sees a clear cause-and-effect link between share valuations and state ownership across emerging markets.
That is particularly so for mining and energy. Rosneft the world's largest oil firm, is valued at 6 times forward earnings. ExxonMobil, the second-biggest trades at 11 times.
indiatimes.com
Despite years of reform pledges, several privatisations and an apparent tick up in the global growth outlook, Russian shares trade only around five times expected earnings for the coming year, approaching depths plumbed during the 2008 market crash.
That's less than half the average for emerging market peers, many of whom Russia is hosting this week at the Group of 20 nations meeting in Moscow.
Given that the G20 chair is charged with forging consensus on economic governance among the world's leading economies, there is an irony in it being one of the least trusted investment destinations of its peers - at least as reflected by prices and demand.
Even if one accounts for the commodity firms that make up most of the index and generally trade at a discount to retailers and banks, valuations are well below Russia's own past average.
Most will attribute this, with some justification, to Moscow's past record of expropriations, weak corporate governance and the Kremlin's heavy-handed involvement in the economy.
All this has been driving tens of billion dollars in capital to flee from Russia every year. But investors also point to prosaic factors such as the lack of a domestic capital base that leaves markets exposed to the vagaries of global risk appetite.
Russia is also overwhelmingly reliant on oil which provides over half of budget revenues. As a result, those betting on valuation re-ratings for returns, have had their hopes dashed year after year.
"People who have been watching Russia for a long time are feeling a real sense of frustration," says Jose Morales, chief investment officer of Mirae Asset Global Investments in New York.
"Some people point to the valuation discount as a reason to buy but that is a structural discount that will not disappear until we see some really significant progress on reforms."
Fund managers such as Morales do acknowledge improvements - above all this month's move to ease foreigners' access to domestic bond markets, which Barclays estimates could lead to $40 billion in capital inflows in 2013-2014.
But any faith in the Kremlin's reform pledges suffered a blow last year when state-run Rosneft took over oil firm TNK-BP, grabbing control over 40 percent of Russian oil output.
The oil sector's consolidation around Rosneft was a clear sign that Russia retains its proclivity for state intervention, says John-Paul Smith, head of emerging equity strategy at Deutsche Bank, who sees a clear cause-and-effect link between share valuations and state ownership across emerging markets.
That is particularly so for mining and energy. Rosneft the world's largest oil firm, is valued at 6 times forward earnings. ExxonMobil, the second-biggest trades at 11 times.
indiatimes.com
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