From Russia to investors with love

With a year-to-date performance at over 100 per cent, Russian stock markets are prompting shouts of "nazdrovia" around the cafes and bars of Russia's new investor-class.

For emerging market enthusiasts, and particularly the Bric-followers, the case for a prosperous medium-term in Russia is gaining momentum. The obvious question is: how sustainable is this current Russian-led regional prosperity?

For Gulf News readers, who better to ask than Palestinian-born, London-based Ghadir Abu Leil-Cooper, head of EMEA Equities at Barings? Leil-Cooper manages Barings' Russian Fund as well as the more regionally focused Eastern Europe Fund (YTD +87.9 per cent on the September fact-find). An Arabic-eye, tracking Eastern Europe's emergence from the comfort of recession-hit Western Europe.

For Leil-Cooper, Eastern Europe is playing "catch-up" with Western Europe, but the important conclusion is "that they will catch up".

This means that Leil-Cooper makes her investment decisions under the influence of the belief that if the Western Europeans can have mortgages, telephones, the internet, life insurance and fridges, so too, one day, will the Eastern Europeans.

After all, "they are well educated and underpaid", says Leil-Cooper adding: "The consumer in Eastern Europe is under-leveraged compared to his Western European counterpart, they can afford to borrow, the banks have the money, and that will provide an important growth engine."

Number of angles

The "catch-up-with the West" factor has a number of angles to it. It's not just that Svetlana in the East will (eventually) be on the phone to friends for as long as her Essex-based Sharon.

Additionally, the big production businesses of Western Europe are going to look at Eastern Europe's educated and cheap work force and say; "I'll pitch my production tent here."

Such a trend, Leil-Cooper says, has high-level political support with funds being made available for the EU's new eastern acquisitions, funded by the taxes and coffers of the western states.

Such funding will support infrastructure, education, and all those expensive things the growing middle class will soon see as necessities.

Yet catching the west is not the only driver behind Leil-Cooper's eastern promise. Eastern Europe, and Russia in particular, also carry the typical Bric population-based "consumption story".

Billions of people in India and China, and loads more in Russia and Brazil, will raise their purchasing power as lifestyles improve and as governments continue to prioritise economic growth.

For Leil-Cooper, Russia's consumption story is strengthened by its exports. Russia is a major exporter of commodities.

With India and China leading the way in urbanisation, the demand for commodities will not suddenly disappear; "the migration from rural areas to towns is hugely commodity consuming" says Leil-Cooper, giving Russia the benefit of two consumption-based drivers: domestic demand and export demand.

The growth logic for Eastern Europe (and Russia particularly) may sound compelling, but with massive recent returns have investors missed the boat?

For Leil-Cooper, the show isn't over. "Eastern Europe has gone from super-cheap to good value."

Leil-Cooper, while selling the growth engine, does acknowledge risks like the usual emerging market risks, led by politics, particularly in Russia, "while interest rates in Turkey and recession in central Europe might also provide risks".

The stats in today's box relate to the Eastern Europe Fund, which is 58.7 per cent weighted towards Russia.

If weight betrays her favourite growth engines then the silver medal goes to Turkey (14.6 per cent of the fund), where Leil-Cooper says: "Of all my years looking at this market it has always been boom and bust, but it now looks really good."

The principal reason for confidence is embedded in low inflation and lower interest rates, allowing for lending nearer to what Leil-Cooper calls "proper rates".

The bronze medal goes to Poland (7.3 per cent of the fund, pushing the Czech Republic at 6.9 per cent into fourth). For Leil-Cooper we have to respect Poland for being "one of the very few countries in Europe to grow its GDP over the last 12 months".

The writer is chairman of Mondial Financial Partners