Having borrowed a few million pounds of additional money from its bankers last week in order to gear...
Having borrowed a few million pounds of additional money from its bankers last week in order to gear up, JPMorgan Flemming's Russian Securities investment trust manager Mark Robinson says the scope for improving returns is growing all the time.
Russia in the past year has, of course, been a story of oil and gas, and that is one that continues to dominate the economy.
However, signs are emerging that the economy is beginning to mature and diversify, and that regions other than Moscow or St Petersburg are starting to offer serious investment potential.
GDP growth forecasts for this year range between 4% to 6.5%, and Robinson and his team are currently revising their own forecasts after last year's performance - with no indication that it is going to be lowered.
The nominal inflation rate is high by UK standards - 14% in 2002 - but it needs to be put in context of rates of 20% and 85% in 2000 and 1999 respectively.
What really excites the investment trust is the growing opportunities to buy into companies through an IPO market explosion in the next few years.
"We see the bond market becoming investment grade in the next two years, and that will drive interest from institutional investors," Robinson says.
"However, there is also a lot of liquidity in the Russian market, which will drive IPOs. BP's entry into Russia [through a $6.75bn deal] implies a market for IPOs. And we have seen 50 companies in the past three years that we feel could IPO in the next 12 to 36 months."
Robinson says that besides buying into the oil and gas sector, the trust is also focusing on banks and telecoms to gain exposure to the fast growing consumer economy.
"It sounds corny, but I always like to say that a third of Europeans live in Russia and the Ukraine."
"GDP per capita is low by Western standards, but disposable income as a proportion of income is high. One reason is that most Russians were given their flats, which means they do not have mortgage debts. Utilities are also heavily subsidised."
"We have bought into Sberbank, which handles a big percentage of deposits in Russia, and it is getting a return on equity of 30% at a historic price/earnings multiple of 4x, which offers a lot of upside for the investor."
"In telecoms the penetration rate has doubled in each of the past three years and now stands at about 12%. Again, it is a proxy on the Russian economy being liquid."
It will still take 20 to 30 years for all of Russia to catch up to Western standards of living, but with companies currently valued at less than Western peers and growing much faster in many cases, it makes sense to invest now, Robinson adds.
Even in the most successful sector, oil and gas, P/E multiples trail Western companies, despite the fact that the merger of Sibneft and Yukos Oil will create the world's fourth largest oil company, and one that is growing production much faster than, say, BP or Shell.
Yukos trades on a P/E of about 7x, and Sibneft on 8.5x, Robinson says.
Gazprom, the main gas company, already supplies 40% of Europe's gas, and is likely to tap more foreign investment to fund capital expenditure to modernise existing facilities and build a new pipeline to Asia, primarily to satisfy China's energy needs.
Such capital expenditure will drive growth in supporting industries such as pipe manufacturing in areas such as Western Siberia, which are where the next interesting investment opportunities may lie, Robinson says.
In the long term, the Russian stock market will get a big boost from domestic institutional investment because of plans to introduce a Chilean-style compulsory private pension system.
The model has already been adopted by Poland, Robinson says, and the funds generated will eventually be invested in assets such as Russian stocks, which will boost share prices - although he stresses that this will only start to be noticed well into the future.
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