The Key to Profiting in Russia

04/17/2008 12:00 am EST


John Connor

Founder and Portfolio Manager (retired), Third Millennium Russia Fund

John Connor, founder & portfolio manager, Third Millennium Russia Fund, is bullish on emerging markets, particularly Russia

Connor told attendees that the time is right for investing in emerging markets, especially Russia. He noted that many investors shy away, not knowing which questions to ask. Additionally, they feel uncomfortable with the lack of data points in global investing, compared to the wide range they use to analyze domestic investments.

That's why mutual funds make a lot of sense for the average investor-especially those that invest in companies that are mature and experienced. The BRIC countries-Brazil, Russia, India, and China, constitute about one-half of all emerging markets, Connor said, and they exemplify the more mature and dependable countries that are home to many companies with long track records.

Connor favors investing in Russia for several reasons, including:

  • The Russian market is undervalued; it was the worst performing of the BRICs last year. Now, its growth prospects are a lot better.
  • The Russian Central Bank has the third highest reserves in the world, after Japan and China, and the country has a substantial trade and budget surplus.
  • Russia is the largest exporter of energy in the world. Connor's fund is a buy-and-hold vehicle, and one company he currently likes is fertilizer manufacturer Uralkali, as its potash product is in great demand around the world, due to the current emphasis on increasing yields.
  • Consumption is heating up, as Russians begin to spend a lot of money on cars and mortgages.
  • The regime is very fiscally conservative, looking for the private sector to become more involved.
  • Businesses are now following International Accounting Standards, making for greater transparency and good corporate governance.

But Connor advised investors to watch liquidity. He suggested that they continually take their money from rising investments off the table so that their positions remain proportionate and secondly, invest in blue chip companies that are not illiquid, like GazProm and Lukoil.

Lastly, Connor cautioned that investors make sure that the companies in which they invest are really companies and not a quasi-government entity. And he left attendees with his current favorite sectors: steel, fertilizer, and telecom.

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