Take part in the growth in this decade as well!
Of the 94,000 plus regulated funds in the world today, our Russian fund was number one during the first decade of this century, with a return of 1,565%(USD). East Capital’s team of 36 fund managers, investment managers and analysts visit 1,200 companies in Eastern Europe and China every year. This enables us to find both opportunities and risks that rarely make it into annual reports. There is good reason to believe in continued growth in Russia, a country with GDP levels still considerably lower than those of the West, with huge amounts of natural resources, a rapidly-growing economy and an extremely powerful domestic purchasing power.
The following facts say it all
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- Oil money is reinvested: domestic consumption is the strong driving force
Over the last ten years, oil has been an important engine for growth. But the primary driving forces have actually been consumption and investments in the domestic economy. Thus, companies exposed to the domestic economy have outperformed export-intensive companies. The domestic economy has been the focus for the East Capital Russian Fund, and the main factor behind the outstanding returns this last decade. Furthermore, due to rising oil prices and increasing production capacities export forecasts are looking better today than they were ten years ago. So the pattern remains, and if anything has strengthened: the real winners from increased exports are companies focusing on the domestic economy, with sectors such as consumer goods, infrastructure, real estate and telecom.
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- Perspective: GDP only back at 1989 levels
Despite the tremendous growth this last decade, we can confirm that Russia's GDP is now back at the same levels preceding the economic collapse in 1989. Furthermore, inflation levels and interest rates are at historically low levels and the burden felt by many Western economies due to high national debts is not affecting Russia. In addition, Russia has the world's third largest currency reserves, 6% of the world's oil reserves and huge amounts of other raw material reserves. Another critical factor pointing at further growth in Russia is the fact that Russians are basically debt-free. With average mortgage borrowing of EUR 170 per capita and income tax at 13%, the forecasts for domestic consumption as an engine for growth look bright, to say the least! Everything is in place for a continued convergence with the West and a position for Russia as Europe's largest economy as early as 2025.
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GDP-development 1989-2020E
Source: Haver, East Capital
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- Opportunity: still low valuations and the same high risk premiums as in 1999
The markets are reflecting neither the substantially-improved economic situation nor the forecasts. Foreign investors are valuing Russia based on the same high risk levels used ten years ago. This means that in practice, Russia is trading at a 50% discount compared to other large emerging markets, such as China, India and Brazil.
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P/E-ratio 1999 vs. 2009
Source: Bloomberg |
Fund fact sheet and prospectus are available at www.eastcapital.com
Historical returns are no guarantee of future returns. Money invested in the fund can both gain or lose value, and there is no guarantee that you will get back the full amount invested.
* Highest returns of the 94,000 plus onshore regulated funds from 01/01/00 to 31/12/09. Source: Morningstar
