Russia Hedge Funds Top List of Single Strategy Performers in 2006
Holiday season shoppers on Moscow's Tverskaya Street
Photo by: Charles Ganske
This week world stock markets took a beating after China's Shanghai exchange lost 9% of its value in one day, and Russian stocks were no exception. Leading Russian companies like Rosneft are heavily invested in expanding their trade with China.
However, this temporary setback shouldn't discourage investors who take the long view of the Russian economy. As Vladimir Kuznetsov, director of financing for the FINAM Investment Firm in Moscow, pointed out before this week's global correction, Russia's stock market was up 92% this year. In comparison, the U.S. S&P 500 index grew by 13.6% in 2006.
Mr. Kuznetsov adds that major Western investment companies like Barclays Global Investors, State Street Global Advisors, Legal and General Investment Management are doubling the size of their stakes in Russia from 5% to 10% of their emerging market fund portfolios. Mr. Kuznetsov quotes J.P. Morgan analysts lauding the Russian government's plans to invest $185 billion in oil and gas revenues into new infrastructure, noting that, "Russia stands out among its peers in the BRIC (Brazil, Russia, India, China) markets."
This Sushi Planet restaurant near Red Square is owned by Rosinter
Another financial story that recently emerged from the blogosphere is the success of Russia-focused hedge funds last year. Financial blogger Greg Newton received an email from one of his readers pointing to a list of the forty top-performing single strategy hedge funds in 2006. The vast majority of these top performers are heavily invested in Russia. Critics would argue that the success of these hedge funds only proves that high-rollers can reap record returns by taking advantage of high global prices for Russian energy and precious metals. However, according to Mr. Kuznetsov, only half of Russia's stock market capitalization comes from oil and gas extraction.
Leading the way for 2007 is Vneshtorgbank, the second largest retail bank in Russia. VTB plans to float $4.6 billion in shares split evenly between domestic and international markets, according to RIA Novosti. VTB wants to follow on the success of its competitor Sberbank's successful privatization IPO earlier this month. Sberbank shares were bought by over 46,000 individual and corporate investors. Russia Blog readers may find it interesting that two years ago, Business Week reported that the expansion of VTB demonstrated the Kremlin's ambitions to keep the Russian banking sector state owned. Now VTB is being privatized. Russia's TransCreditBank also has announced plans to float 20-30% of its stock, estimated to be worth $700 million, in 2009.
Russian stock market performance in the last seven years
Source: Sovereign Global Investment
Sitronics, Russia's largest electronics producer, plans to raise $500 million in capital this year. Sitronics is the high technology subsidiary of Sistema, Russia's largest telecommunications company. Other non-natural resource based IPOs planned for 2007-2008 include:
Arbat Prestige, a perfume and cosmetics retailer
Prodimex, a powdered sugar processor
Rosinter, a holding company for several popular restaurant chains
Ipnet, a broadband and satellite communications provider
Softline, a software developer
Kraftway, a PC and server manufacturer
Pharmastandart, a pharmaceuticals producer
Zillshny J Kapita, a Moscow real estate developer
United Energy Systems CEO Anatoly Chubais
The mother of all Russian IPOs planned in the next few years is the state owned electricity giant Anatoly Chubais. UES recently raised their estimate of their market capitalization from $79 to $110 billion. To put this large number in perspective, Dallas-based utility TXU Corp is in the process of being sold to a consortium of private investors for $26.4 billion in the largest leveraged buyout in American history. Like the old Ma Bell monopoly which existed in the U.S., UES will reportedly breakup into several regional companies to better serve consumers. As we have reported previously here at Russia Blog, Russia's booming economy has strained power grids in Moscow and St. Petersburg that are still heavily dependent on cheap subsidized natural gas for their generating plants. Now that domestic gas subsidies are gradually being scaled back, Russian energy companies need to raise tens of billions in capital to meet surging demand for electricity.
Besides UES, the other remaining "national champions" planning IPOs include United Aircraft Building Corporation (the consortium formed from the old Soviet Sukhoi, Mikoyan Gurevich, Yakovlev, Irkut, Ilyushin, and Tupolev design bureaus) and Aeroflot Russian Airways.
While every financial advisor uses the disclaimer that "past performance is no guarantee of future returns", the process of true privatization (not like the 90s style auctions rigged by the oligarchs) and diversification of the Russian economy from its natural resource base is accelerating.
Read more about the Russian stock market at Vladimir Kuznetsov's excellent Equity Financing in Russia blog.
Comments
Thank you, Charles, for yet another unbiased report that stands in stark contrast to incessant squealing by many politicians and sold-out media that Russia is "taking steps back" in its "progress" towards "democracy", whatever the latter means. It's always refreshing to read something that is based on real verifiable facts instead of ignorant bigoted opinions of those living in outdated misconceptions of the past.
Truth of the matter is this: United States and Western Europe want Russia to be weak and riddled with problems. Complete ruin of Russia would be dangerous due to geopolitical turmoil that would ensue, not to mention the stockpile of advanced strategic weapons to be accounted for. And yet strong and competitive Russia is unacceptable as well, as it begins to exert its influence and display great competitive edge in the marketplace. To use good metaphor of one Russian citizen commenting on this situation, West wants Russia to be crawling on all fours; to avoid her being completely prostrate and helpless, and yet at all costs preventing her from trying to stand up. West wants the Russia of 1990’s, economically desolate, plagued by ruthless oligarchs who seized access to the enormous natural resources, in cahoots with a band of drunkards in Kremlin, whose complete disregard for their own people and obsequious readiness to kiss West’s ass were simply ideal.
That is why there’s such enormous disparity between how Putin is perceived at home, enjoying well over 70% support of populace, versus how he’s perceived abroad, particularly in the States and Europe, who can now only resort to shameless vilifying and slandering in the wake of an amazing economic and political resurgence staged by Mr. Putin in the last 7 years.
And yet the savvy Western entrepreneurs, ever so eager to seek greater bang for their buck, completely disregard all the smoke the media and politicians are blowing up everyone’s asses. They continue to capitalize on the unprecedented growth of the 10th largest economy in the world, set to overtake Italy’s and France’s in the next few years. There are those who perceive Russia to be en ever-cold land mass populated by evil doers in ushankas, feeding their infants with vodka and dreaming of annihilating the good people of the West. And there are those who see Russia as a country with rich history and culture, of people long oppressed by the regime, and now aspiring to improve their lives despite the overwhelming challenges and odds. It’s always easier to destroy then to build. Chaos is self-sustaining, but order is acquired through much effort and sacrifice.
Please continue with your informative and educational reports, Charlie.
Posted by: Al Goroh | March 2, 2007 9:54 PM
That's not the only good news . Goldman Sachs projected that, if all goes well, Russia's GDP is set to exceed that of the United Kingdom in 2027, and Germany in 2029. Assuming that nothing catastrophic occurs between now and then, of course.
Posted by: YankeeAlpha | March 5, 2007 10:08 AM
Excuse me, but I don't think that a weak Russia is good for anyone at all. I for one, think that Russia has been poor for far too long, and should take its rightful place among the great economic powers. Yes, some in the US do view Russia as a threat, but this is clearly a mistake. Russia is best left to its own devices, whatever course democracy takes. Besides, Cold War logic is clearly outdated.
Posted by: YankeeAlpha | March 5, 2007 10:14 AM
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Posted by: Luke | March 6, 2007 10:23 AM
"That's not the only good news . Goldman Sachs projected that, if all goes well, Russia's GDP is set to exceed that of the United Kingdom in 2027, and Germany in 2029"
I did my own calculations and came to conclusion it will happen sonner. Russia's nominal GDP is set to exceed UK's GDP in 2013 and Germany in 2016.
If calculate in purchasing power parity, then Russia's GDP-PPP will exceed France and UK in just couple years, assuming Europe will continue to grow 2%.
In 1999 Russia's GDP was only $188 billions. This year it will be $1,185 billions. http://www.dbresearch.de/servlet/reweb2.ReWEB?rwkey=u1562130 It growing much faster than anybody might expect.
P.S. And don't forget: Russian GDP is underestimated by 28% http://www.rusbizconf.com/russiaeconomny.htm
Posted by: dimetc | March 12, 2007 9:42 AM
In the wake of the collapse of the Soviet Union, the imperialists and their wannabees are in the process of redividing the world's assets, and they head onto a collision course even among themselves.
The death of the Soviet Union has sent shockwaves through time itself. Its effects will be felt for genertations.
The world is preparing for war, and the working class is going to pay the price for its permissive stupidity.
Posted by: John Adams | March 24, 2007 6:28 PM