Zee Beam News

13.07.2005 16:47 MSK MosNews - Investors were shaken by the state-driven breakup of Russia's leading oil company Yukos and the long fraud trial of its ex-CEO Mikhail Khodorkovsky. But they have recovered their poise and pushed the market towards all-time highs, Reuters reported Wednesday. Fund managers say, Russia is still the cheapest emerging market in the world even after the benchmark RTS index ran up year-to-date gains of 23 percent. "We have called the market positively since the start of the year because we thought the Yukos discount would fade," said Steffen Gruschka at DWS in Frankfurt. "Valuations are attractive and liquidity is enormous." DWS's 500 million euro (345 million pound) Eastern Europe fund has gained 23 percent in euro terms in 2005 and Gruschka, who likes pipeline, refining and fertiliser stocks, has increased his Russia weighting in anticipation of further gains. The demise of Yukos raised profound questions about property rights and the rule of law in Russia. But, after Khodorkovsky was jailed for nine years in May, many investors concluded that the investment climate could only improve and refocused on fundamentals. Russia is trading at around seven times forecast earnings — still lower than Brazil, the next-cheapest market in the emerging markets universe — and well below a historic average of over 10. "The Russian stock market is the cheapest in the world even after the latest move," said William Browder, head of Hermitage Capital Management, the largest Russia-dedicated stock fund with $1.8 billion under management. "There is an enormous amount of liquidity combined with very low valuations. You have the kindling to start the fire as soon as there is some optimism," said Browder, whose fund is ahead 17 percent year-to-date. Morgan Stanley's MSCI Russia index, a more representative yardstick for emerging markets investors, is up 17 percent and stands 10 percent off its April 2004 peak.