Foreign Investors to Come Back to Russia

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Apr. 15 – Belief in the profit outlook has lured investors back to emerging markets, including Russia. Spurred by growing conviction that rates will remain low, investors have reduced their cash holdings and increased equity positions, most notably in global emerging markets, according to the BofA Merrill Lynch Survey of Fund Managers for April.

The investment bank’s monthly survey of 282 fund managers found a net 50 percent to be overweight in equities compared with a net 45 percent in March.

Appetite for emerging market stocks has bounced back with a net 22 percent overweight, up from a net zero percent in March.

At the beginning of the year, emerging economies were expected to grow less as central banks started raising interest rates to fight inflation. Developed economies, on the other hand, were seen as a positive growth surprise for 2011.

The Grant Thornton International Business Report for 2011 shows that the BRIC economies lead the way with 44 percent of companies looking to grow through acquisition this year, compared to 27 percent in 2010.

“Flows into EMEA equity funds, the only major emerging markets equity fund group to post inflows during the quarter, continue to be driven by enthusiasm for Russia’s commodities story and the fact it is the world’s largest oil producer outside the Middle East and Africa,” said EPFR Global’s media statement.

Russian equity funds have benefited from net inflows in all but two of the 26 weeks since the start of Q4 2010, absorbing just under US$5 billion during that run.

According to the EPFR Global survey, Russian equity funds last week saw inflows totaling US$402 million compared with a net US$608 million received the week before.

Inflow to Russian funds has almost continuously proceeded since last December. From the beginning of 2011 it has constituted US$3.8 billion.

Emerging market success will continue, says JP Morgan.

Richard Titherington, chief investment officer of Emerging Markets Equities at JP Morgan Asset Management, notes there has been a dramatic change in asset classes over the last 20 years with the emergence and growth of the BRIC economies and the case for future prospects in emerging market equities also looks positive.

“In my view, we are half way through a 40 year rebalancing period in global equities. Emerging markets could account for 40 percent of global equities in the next 10-20 years, compared with just 12 percent today,” Titherington said.

All experts agreed that emerging market countries will benefit from sustainable long-term trends in the coming years and infrastructure will play a significant part in future growth.

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