Russian Bear may stir Bull market
by Aleksander Nowacki
The arrest of Mikhail Khodorkovsky, the powerful CEO of YukosSibnieft oil company and Russia's richest man, may well provide a boost to this country's capital market. Withdrawing from Russia due to what is widely seen as a politically-motivated campaign against that country's business circles, portfolio managers are expected to invest a higher proportion of their assets in this country.
"It is likely that there will be a higher allocation to the local market," says Piotr Chudzik, head of corporate finance at Deutsche Bank. He cautions, however, that investors are unlikely to allocate all the assets withdrawn from the Russian market to this country, pointing out that many of the investments in Russia were made in the oil sector. As a consequence, he says, "investors will be looking to move their investments to those markets where they can maintain exposure to that sector."
Even if only a small proportion of the estimated $5 billion (zł.20 billion) that is likely to pour out of Russia comes to this country, it will be a reversal of the usual scenario seen for the better part of the 1990s, when any troubles in Russia led to investor anxiety about this country as well.
"In our view, these markets were seen as closely connected until the Russian crisis of 1998, but that has changed," Chudzik says. He adds that there remains a connection in terms of servicing, as one portfolio manager tends to be responsible for both markets, but when it comes to investment decisions, they are seen as separate.
Paweł Gieryński, chief executive officer at Copernicus Capital Partners private equity firm, says that the fortunes of Russia have been less and less relevant to the local economy over recent years, although he points to a certain ambiguity as to where exactly this country belongs in the medium-term.
"We are in a sort of a limbo," he says. "At the moment the portfolio managers responsible for this country tend to also work on Russia." The European Union accession next year will, however, change that, as assets in this country will be managed as part of a wider regional portfolio, embracing the whole of the EU. The existing situation may, however, prove beneficial in the context of the troubles currently experienced by Russia, as managers will likely seek to move assets within the region under their management.
The evidence of recent developments on the Russian market points to the likelihood of such developments. When Khodorkovsky's right-hand man, Platon Lebedev, was arrested in June this year, the Russian stock exchange plummeted more than ten percent, while at the same time the WIG20 index, tracking the 20 largest companies on the Warsaw Stock Exchange, gained two percent on the day following the arrest, hitting a 12-month high.
The consequences of Khodorkovsky's arrest are likely to be much graver. The Russian stock exchange lost some 12 percent over the course of the last week, while the WIG20 gained as much as four percent on the day after the arrest. The effects are not, however, likely to be lasting.
"The bottom line is that what affects the local equity market is the situation in this country, the other European Union accession states and on the global financial markets," Deutsche Bank's Chudzik says.
