Blog: Investors shy away from Russia's bubbling equity market

Investors fishing for emerging markets prefer to cast their line for commodities in Brazil rather than cast into Russia’s waters.

The latest data last week from Emerging Portfolio Fund Research indicate new inflows into funds covering Brazil worth $462m while Russia funds reported a measly intake of $18m.

While capital flows into Russia-dedicated funds dipped from the prior week’s $30m total, the positive figure did represent the first four-week period of inflows since the 10-week inflows registered over May-June 2008.

The rebound in international oil prices and the recent stability of the rouble have helped the Russian stock market to stage a strong bounce from its precipitous drop in late 2008.The recovery, though, is far from complete and the most of the slow-moving super-tanker investors are still waiting on the sidelines until other variables, such as the level of bad debt, fully materialise.

Those investors circling the dance-floor like awkward teenagers at a barn dance may miss out if the bear rally runs out of steam. So far, the rebound has seen the main RTS index rally by 50% since late January.

Hedge funds burnt by the same index’s 75% collapse from September through to January have done even better. Red Star, which is run by James Fenkner from his new abode in Los Angeles, added an impressive 126.8% during the quarter. Each month generated positive returns for Fenkner: January brought in 41.2%, February 22.4% and March 31.5%. In the early days of April, his fund is also up modestly on the month.

Red Star, like many other foreign investors, prefers to trade in Russian ADRs and GDRs. Moscow’s bourses have been shut down now for over a month but you can’t blame them for choosing London and New York for better liquidity and settlement.

Elsewhere, inflows into Asia-focused funds more than doubled from $371.8m to $794.3m, continuing to build up from the previous week’s strong surge. EMEA, though, remained in the red with $9.7m of outflows, while LatAm markets reversed the previous week’s outflow of $22.7mn to a massive inflow of $556.8mn in the week ending 8 April.

On a year-to-date basis, LatAm remains the leader with total inflows of $1.5bn, compared with the EMEA’s $ 1.3bn outflow while Asia (ex-Japan) is on a steady path to positive territory with a current year-on-year outflow of just $76.4m.


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