Investors Come Back to Russia

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Jan. 16 – Russia-focused equity funds attracted US$43 million of inflows in the week to January, 11, equaling about 0.4 percent of the total amount under management, UralSib Financial Corp. said in a report, citing EPFR Global Data.

“This is the first week of positive flows in the last eight,” UralSib analyst Slava Smolyaninov said in a report.

According to experts, US$650 million had been cashed out of Russia-focused funds for the last eight weeks of 2011.

The trend is of investors putting money into Russian assets as part of larger emerging market funds, said Chris Weafer, a strategist at Troika Dialog.

“They have increased their Russian assets over the last three weeks, with inflows as of last week reaching US$133 million, or 0.27 percent of the amount under management,” he said.

Analysts see the positive shift as part of a general change in attitude towards emerging markets, not just Russia. For the week ending last Wednesday, emerging market funds grew by US$1.8 billion, Weafer said.

“Investors are not betting on specific countries – US$1.6 billion of that amount was put into relatively stable and balanced emerging market funds,” he said.

It is too early to say this is a reversal in the trend, said UralSib Capital senior trader Andrei Kukk. As usual, at the start of the year, everyone gets new limits — the inflow of funds to Russia could be due to the fact that finances are being reallocated between various accounts. In reality, fresh money is not yet visible on the market.

“Through the middle of February, there will be no serious inflows or outflows until there is some clarity about the presidential election,” Kukk said.

With the MICEX up 6 percent, it’s clear that related markets are paying attention, but so far the situation on markets globally isn’t so bad as to push investors to the Russian market, ignoring the lack of political clarity and other risks, one trader said.

“Economies have been pumped up with cheap money, which can brings some temporary positive effect, including in Russia,” Pavel Dorodnikov, head of department at Rye, Man & Gor Securities, said to the Russian business daily Vedomosti.

At the same time, investor attitude towards Russia is deteriorating due to the political uncertainty, which is in turn increasing the risk of capital flight, which could put greater pressure on Central Bank of Russia reserves and the ruble. The ruble weakened by 11 percent in the last four months of 2011 against the U.S. dollar.

Net private sector capital outflows reached US$84 billion in 2011, up from US$34 billion in 2010.

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