Five Stocks For A New Russia

Prepare to become familiar with this term: New Russia. You are going to hear a lot more about it.

Russia has been avoided by investors but offers selected opportunities (Photo credit: Ed Yourdon)

Generally, Russia has been on the avoid list for many emerging market investors in recent years. In addition to all the other problems facing emerging market assets today – such as a risk-off attitude in the world investment community that is favouring US and European holdings rather than those in the high-growth emerging world – Russia has an impressive assortment of ailments all of its own. Top of the pile is corruption: it ranks 113rd out of 174 in Transparency International's Corruption Perceptions Index. Then there are corporate governance worries, a history of state involvement and intrusion, and a decline in the commodities sector of which so many of Russia's major credits are a part.

But perhaps that's not the whole story. Today Charles Robertson, global chief economist at Renaissance Capital in London and one of the most interesting voices in emerging market investment, sent a note to clients saying: "The theme that's exciting our Russia research team is 'New Russia'."

"The investor feedback we've got from the past two months is pro-Russia," Robertson says. "For all of Russia's problems (and it has a fair few), it does still have the most literate, large, IT savvy population in emerging markets." Renaissance argues that Russia is uniquely placed to both produce and consume the IT and high-tech sector. "Investors want more exposure to New Russia," it writes in a new research report today. "Underpenetrated sectors combining fast growth with world-class levels of technology, management and corporate governance; sectors the government sees as enabling Russia's growth and modernisation and thus without the regulatory, taxation and legacy burden of many of Russia's index heavyweights."

"We're not arguing that Russia is embarking on a new reform effort – in fact, we argued the opposite over the summer," Robertson says. "But asset prices can still rise without reform, for a few years at least. And New Russia is its own idiosyncratic reform story."