Oil, dividends, cheap assets - return to Russia rewards investors

Mon Mar 16, 2015 8:37am EDT
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By Karin Strohecker and Sujata Rao

LONDON (Reuters) - Fund managers who bet on beaten-down Russian stocks and bonds have been rewarded with some of the best returns in emerging markets so far in 2015.

Foreign investors fled Russia last year, panicked by an oil price collapse, a simmering conflict on the Russia-Ukraine border and Western sanctions that effectively froze the country out of credit markets. The subsequent 50 percent plunge in the rouble's exchange rate between May and December provided another catalyst for the exodus.

Those fears have not entirely vanished. Yet since the start of the year, oil has bounced 25 percent, the rouble has stabilised, and the central bank is reversing last year's interest rate hikes, cutting rates on Friday to 14 percent.

"We held nothing (in Russia) from about February last year, to December, and since December we have put our money back to work," said Paul McNamara, investment director for emerging markets at GAM.

Russian asset prices, always cheap but especially so these days, were a factor, McNamara said.

"Usually one of the things we try and do is buy things that are beaten up – after owning no Russia last year we started buying Russia," he added.

Investors such as McNamara have been amply rewarded so far, as Russian stocks and bonds have returned in excess of 5 percent, outstripping most other emerging markets as these graphics show:

link.reuters.com/bub37v   Continued...