optimists gather

By Michael Stott - Reuters Thursday, February 5, 2009 MOSCOW: A dwindling but hardened band of Russia enthusiasts has descended on Moscow for an investor conference, some drawn by the possibility of bargain prices on assets, others hopeful that the financial crisis will accelerate overdue changes.Russia has been in the investor doghouse since a combination of war in Georgia, government interference in major companies and a collapsing ruble made its stock market one of the worst performers in the world last year.The RTS stock index in Moscow plummeted 75 percent from its highs in 2008 and has fallen further this year.Underlining the grim mood at the Russia Forum 2009, organized by the local brokerage house Troika Dialog, news arrived on the opening morning Wednesday that Fitch had downgraded Russia's credit ratings. And the top government speaker, First Deputy Prime Minister Igor Shuvalov, signaled big cuts in government spending to preserve dwindling Russian cash reserves.Adding to investor perceptions of heightened political risk, Kyrgyzstan, a Central Asian ally of Russia, announced on the eve of the investor forum that it would close an important U.S. military base, a move diplomats saw as inspired by the Kremlin.But despite the gloom, some investors were still bullish."You have some assets here with a 25 percent dividend yield," said Jochen Wermuth, chief investment officer of Wermuth Asset Management, based in Frankfurt. "And how bad can it get if you have a company with $18 billion of net cash on its balance sheet?"Wermuth was referring to Surgutneftegaz, one of the largest Russian oil companies. Analysts say concerns over its opaque ownership structure and corporate governance was why the market values the company at no more than the value of the cash on its balance sheet.Several speakers at the conference said the collapse in the price of crude oil, the main Russian export, would pressure Moscow to clean up its act."When oil was at $147 a barrel, people would overlook institutional issues," said Joel Kurtzman, chairman of the advisory firm Kurtzman Group. But with oil currently at about $40 a barrel, he added, "they are not willing to overlook some of these issues."Shuvalov, addressing investor concerns, said the crisis was good for Russia because it would require the country to go through real restructuring."The glamour period is over," a participant who took notes in the closed session quoted Shuvalov as saying. "Now businessmen are turning to what they should be doing - running their companies efficiently."Recalling past financial storms that buffeted Moscow, Ian Bremmer, head of the political risk consultancy Eurasia Group, noted that "Russia was more investor-friendly when it had a more challenging economic environment."He said that the country's highly centralized system of power meant that Prime Minister Vladimir Putin was "the world's most powerful individual" - a possible advantage in a crisis that required rapid government responses.Wermuth agreed. "The great time of arrogance" in Russia "is behind us," he said. "I remember birthday parties where you wouldn't speak to people unless they were worth $1 billion."Now, he said, investors should give the Russian government a break. "Maybe they are actually doing the right thing," he added.Herbert Henzler, a senior adviser to the chairman of Credit Suisse, pointed to Russia's success in attracting direct investment from a raft of big German companies including Siemens, Daimler, Adidas, E.ON and BASF. "I would just watch what is happening on the micro level," he added.But with companies' valuations here near fresh lows, many investors seem to have given up on Russia already.Alexei Novikov, head of Standard & Poor's in Russia, said foreign direct investment was very low as a share of gross domestic product. "Why? The answer is country risk," he said. "This creates a lot of mistrust and a lot of fear."