As financial writers for UK investors go, I can claim to be in more touch with Russia than many. I am currently sitting in my home about 120kms from the border of the Russian enclave of Kaliningrad. Gas coming into my house is from Russia. My car is often full of Lukoil petrol. My partner speaks fluent Russian and her father is now the last retired Red Army officer alive who was a survivor of the Leningrad siege. If I walk down the road to the local health spa, I will hear the Russian language spoken as much as native Lithuanian. I even speak a bit of Russian and know a few Russian jokes.
On the one hand I perceive as a resident the fierce patriotism of a nation that twice escaped Russian domination (Czarist and Soviet) after great hardship and on the other hand I know that the idea of ‘mother Russia’ as a great nation that can’t be bullied is embedded in the minds of native Russians. In fact, when talking with Russians I feel some fellow feeling about nationality, coming from a nation with similar ideas about its status.
That does not make me an expert on Russian investments of course. It just allows me to better understand how ordinary people well east of the City of London live and react with their economy and politicians.
It is not possible for a liberal minded Englishman to like the way the politics of Russia operates, but equally I don’t like the politics of the Gulf States and even many aspects of the USA at the moment. But it is important to appreciate that as in places like Dubai, many people in Russia tolerate an autocratic government that broadly does what it likes because they are personally getting richer and they feel some patriotic warmth from the ‘strong leader’ story.
In fact, the Russian state has much in common with the Gulf States – autocratic rule, suppression of religion other that the compulsory approved state one, brutal suppression of dissent, an endemic tolerance, even expectation of corruption and loads of oil and gas! Of course many ordinary citizens in both societies are as charming and cultured as anywhere.
Here I come to the investment point: the recent collaboration of Mr Putin with the Saudis seems to have achieved their shared ambition of keeping the oil price up.
This is a relevant point for investors in many ways, but I am making it in this round about way, because a better oil price very directly means a wealthier Russia and that wealth feeds through to the citizens and into the profits of companies that supply that large population. Investment managers specialising in Eastern Europe point out that if you invest in Russia you get both exposure to energy and financial companies that are run in a Western style and ideally not part owned by the Russian state and also a large consumer base that is getting richer. Dividend payouts from some Russian companies are healthy.
The risks of investing in Eastern Europe are many, of course. Currency, liquidity, political and transparency all jump to mind. But as my experience is that investments in this sector move in a rather different cycle to those in India, another economy with great potential for rather different reasons, an Eastern European specialist fund invested for the very long term would be a valid call for more adventurous investors or as a satellite holding for those using the core/satellite approach that I teach.
