Investing in Russia
We've compiled the following information as an introduction into investing in Russia. Below you'll find valuable links and resources covering several major areas of Russian finance. Remember, this is just an introduction into Russian investing. Material herein is not exhaustive and in no way should it be interpreted as investment advice.
Although the Russian economy hasn't seen the same level growth as it's Chinese counterpart, investing in Russia over the last decade has still proven very lucrative.
The Russian economy has grown every year since 1998, with an average annual growth over 6% according to the World Bank. (Excluding 2009 in which the economy contracted 7.9%). While oil prices have certainly played a role, tax reform, a rise in consumer demand and increased foreign investment have also contributed.
The Russian stock market, on the heels of the Russian economy (and oil prices), has likewise posted outstanding returns. From 1999 to 2007 the Russian stock market gained a staggering 900%.
With such spectacular returns, many investors seeking diversification are wondering if Russian investments belong in their portfolio.
Before investing in Russia, its important to look at the risks involved. Investors must weigh in Russia's political risk, it's heavy bias to oil, gas and resource sectors, plus continuing concern about transparency and corporate governance. Listen to the "experts" opinions on CNBC's Investing in Russia: Video Roundup.
So do potential rewards outweigh the risks? It probably depends your tolerance to risk and volatility. Risk averse investors are probably deterred. Those with more tolerance to risk and a greater time horizon, should (over the long run), realize significantly greater returns than in mature economies of the west.
How to reduce risk when investing in Russia.
- For starters, when investing in Russia only invest what you can afford to lose.
- There is less risk when you diversify into
more companies and sectors of the economy, so
you may want to look at Russian ETFs and mutual
funds. (see below)
- Another way to mitigate your risk is to invest with long term goals. Russian investments, like investments in any emerging market, are subject to great volatility. A long term objective alleviates the risk of this volatility.
- Finally, if you want to to reduce your risk, and still play the Russian growth story, consider some exposure to neighboring markets. Some of these include...
The Ministry of Finance reports on economic indicators, advises on reform issues concerning banking, the budget, regional tax collection, and the pension fund. Also in charge of managing the state budget and national debt. (see site's English translation using Google)
The Central Bank controls the money supply and interest rates and sets standards for banking activities. It also helps regulate and monitor securities trading and IMF reporting. Website has financial news and the current exchange rate.
The Federal Financial Markets Service (FFMS) is the federal executive body that controls and supervises activity in the financial markets, including the activity of exchanges, and issues the relevant regulations.
Russian Trading System (RTS) is Russia's major trading platform for stocks and currency.
The Moscow Stock Exchange (MFB) holds the number two slot for activity in Russian stock exchanges.
The St-Petersburg Stock Exchange (SPBEX) is number three in Russia in terms of activity.
The Nizhny Novgorod Currency and Stock Exchange a familiar regional Russian exchange.
New York Stock Exchange - A handful of Russian stocks trade on the NYSE. These include...
Russian ETFs (Exchange-Traded Funds) include...
NASDAQ - Only a few Russian stocks are listed here.
The London Stock Exchange is the most popular foreign exchange for Russian companies to list with. Prominent Russian stocks trading in London include names like Gazprom (GAZ) and Lukoil (LKOD).
Wikipedia gives a general overview of banking regulation in Russia.
The Association of Russian Banks is a nongovernmental and noncommercial organization that unites commercial banks and other credit organizations. It provides for arbitration between them and attempts to raise the standards of banking in Russia.
Some of Russia's largest banks and investment institutions include...
- Hermitage Capital Management (famous for campaigning for improved corporate governance)
- Troika Dialogue (Russia's largest and oldest investment bank)
- Renaissance Capital (also a major research firm, oft quoted in the media)
- Sberbank (Russia's largest savings bank - also handles most government transactions)
- Alfa-Bank (one of Russia's leaders in brokering IPOs)
The National Foreign Currency Association is an industry association seeking to advance exchange and money markets within Russia.
The Moscow Interbank Currency Exchange (MICEX) is the largest universal exchange in Russia, the CIS and Eastern Europe.
The St. Petersburg Interbank Currency Exchange (SPCEX) is another of Russia's largest exchanges and handles a large percentage of exchange activity with Russia's close economic partner Finland.
The Siberian Interbank Currency Exchange (SISEX) (translated to English with Google)
The Urals Regional Currency Exchange (UREX) (translated with Google)
Samara Currency Interbank Exchange (SCIEX)
RusRating is an independent rating agency that rates banks, leasing companies, and bonds.
ExpertRA rates insurance companies, bonds, as well as company's social responsibility and market influence.
Standard and Poor's gives credit ratings to major Russian corporations and government structures. In addition, it provides corporate governance scores.
Fitch Ratings issues corporate and public ratings. (ie. credit rating for the Russia Federation).
National Securities Market Association is an industry self-regulatory structure, most focused on banks and state structures which issue securities.
National Association of Securities Market Participants (NAUFOR) is a Russian self-regulatory organization that unites professional securities market participants: brokers, dealers, trust managers and depositories.
The Professional Association of Registrars, Transfer Agents and Depositories (PARTAD) is a regulatory agency for registrars, depositories, and clearing organizations.
The Russian Private Equity and Venture Capital Association is an industry association that lobbies government and commercial structures and facilitates communication and information sharing.
The Russian Venture Fair is an annual event that brings investing institutions and persons together with entrepreneurs in Russia.
Marchmont is a company dedicated to assisting regionally based Russian enterprises in business planning, finance raising and western partner searches.
The Russian Technology Fund is focused on technology related venture capital investing in Russia.
The Foundation for Assistance to Small Innovative Enterprises (FASIE) is a non-commercial state organization set up to help grow small business in Russia.
From Russia With Boo
Join Boo live from Russia with a report on the country's
growing economy as he experiences the good and bad
of the former Soviet state.