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Panel Detail:
Monday, April 24, 2006
3:25 PM - 4:40 PM
What Is the Future of the Russian Economy?
Speakers:
Torstein Hagen,
Chairman and CEO, Viking River Cruises Inc.
Roland Nash,
Managing Director and Head of Credit Research, Renaissance Capital
Richard Sobel,
CEO, Alfa Capital Partners Ltd.
Vladimir Tyurenkov,
Managing Director, Eastern Europe and Russia, Hansberger Global Investors
Moderator:
Elena Barmakova, Chairman of the Board, Fontvieille Capital Inc.
Investment opportunities in Russia have been fascinating investors since the fall of the Soviet Union in 1989. However, the Russian market has been sensitive to political instabilities of this developing capitalist society. For the past seven years, the Russian economy has enjoyed relative stability under Vladimir Putin’s evenhanded rule. However, with the 2008 election looming, many foreign investors are nervous about another potential political jolt.
The panelists agreed that the Russian market has offered some of the most extreme investment risks and rewards during the past 20 years. For example, in the 1990s, Torstein Hagan of Viking River Cruises bought and sold shares of Gazprom, a Russian natural gas company, at staggering 750 percent profit in just a few months. He then started a Russian river cruise business that is booming today. In contrast, Roland Nash watched his Russian investment banking business soar and shrink again twice in the past five years. Yet both men are still in Russia and feel that the long-term opportunities outweigh the risks.
It is widely known that natural resources have been a great source of investment in Russia. Hagan said he believes that Russian energy companies are still undervalued and hold the promise of continuing future profits, especially given increasing global energy demands. On the other hand, although Russia’s “decaying” infrastructure is in desperate need of investment, foreign participation in these types of projects is limited by local regulations and customs. Instead, Richard Sobel of Alfa Capital proposes to channel foreign investing into consumer goods market. As evidenced by recent success of companies like IKEA in Russia, the growing Russian middle class is increasingly looking to spend its disposable income on good-quality products.
The panelists also remarked on the state of education in Russia. The quality of scientific education in the Soviet Union was extremely high, and Russia has a very well-educated work force that is currently leveraged by high-tech companies, such as Intel. Vladimir Tyurenkov of Hansberger Global Investors noted that Russia needs to maintain its high education standards in order compete in high-tech outsourcing market and transition to a "knowledge-based economy," where India and China currently outpace it. Both Sobel and Nash agreed that development of the professional middle class in Russia is critical in stabilizing its economic and political situation, and improving opportunities for foreign investment.
Audience members asked the panelists to speculate on the outcome of the 2008 elections in Russia. Although the speakers said it would be hard to predict, they each offered a best guess. Tyurenkov did not think that Putin would put himself up for re-election, although he is immensely popular and it is very likely that people would vote him in for a third term. Sobel predicted that we will see someone from the current government replace Putin, very likely, someone like Alexander Medvedyev. Hogan and Nash agreed that they do not foresee anyone from extreme national parties get elected. Generally, their comments conveyed an optimistic outlook on the future of Russian political stability and on the future of investment opportunities there.
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