Government stimulus, a more stable rouble and an oil price which surely cannot fall much further are all factors which lead Jupiter's Elena Shaftan to believe Russia is once again becoming an attractive market.
Shaftan, who runs the Jupiter Emerging European Opportunities, New Europe and Emerging Euro Select funds, thinks the 'greater part' of the adjustments in the oil price and the rouble have now been played out and genuine value can be found in the Russian market.
'It was important and necessary for the rouble to devalue in order to relieve pressure on exporters and to ensure the economy remains competitive against other countries that have also devalued their currencies, such as Poland, Ukraine, Romania, and many of Russia's other trading partners including the UK,' Shaftan says. 'This is particularly important given the extent of the fall in the price of oil - Russia's main export commodity.'
Following a 21% decline in the rouble's value versus a basket of commodities, the Moscow government has said it is at the end of its devaluation process for now.
'A more stable rouble will remove the incentive for companies to hoard foreign currency in the expectation of profiting from the devaluation, which has been a contributing factor to the recent slowdown in economic activity. It will also enable the government’s proposed liquidity injection of over $200bn to flow into the Russian economy rather than be diverted into foreign currency speculation,' she says.
Considering the price of oil has plummeted in the last seven months from $147 a barrel to $47a barrel, Shaftan believes it can not decline much further in the medium term. However, Shaftan warns that Russia is braced for a raft of disappointing economic figures to be released shortly.
'Volatility may continue in the short term as macro data and corporate results for Q4 2008 and Q1 2009 are likely to be poor,' she says. 'Russian industrial production, for example, fell 10.3% year on year in December, and the global economic outlook for the next few quarters remains bleak.
'However, in the medium term, the beneficial effects of government stimulus and a more competitively priced currency will start to be felt. In the meantime, we believe much of the short term bad news is discounted through extremely low valuations, with the Russian market trading on just 3x 2009 price to earnings (p/e) even after significant earnings downgrades.'
One of her favourite countries in eastern Europe is currently Poland, which has proved to be resilient despite the eurozone's woes.
'Poland continues to grow despite a sharp slowdown in the eurozone, belying the argument that all the growth in region over the past decade has been linked purely to western European growth,' she says. 'We expect that domestic consumption, driven by wage growth and cuts in income taxes, will help Poland to maintain positive growth rates in 2009. Meanwhile, current account and fiscal deficits are manageable and public debt is relatively low.'
Despite the dramatic market falls seen in the past year in Eastern Europe, Shaftan's long term performance remains positive. In Citywire's pan-European fund manager rankings for the emerging Europe sector, she is ranked 8/29 over five years having returned 26.77%, compared to the average manager return of 13.66%.
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