By Kiryl Sukhotsky and Nastassia Astrasheuskaya
MOSCOW, May 30 (Reuters) - Russia is one of the world's most attractive emerging markets, but needs much tighter monetary policy to cut its dependence on the West, the chief investment officer at Swiss Lombard Odier told Reuters.
The country's loose monetary policy, similar to that of a number of other emerging markets, has allowed for an elevated real exchange rate to weaken equity returns, Paul Marson said in an interview.
'Monetary policy in Russia is a bit too easy still... The underlying inflation picture is deteriorating as domestic growth tends to pick up some of the burden of the growth from what was formerly the external growth engine,' Marson said.
He said, however, that officials will respond to voters' sensitivity to prices and will bring the annualised rate of inflation -- at 9.6 percent in April -- down before the March 2012 presidential election.
Lombard Odier, Geneva's oldest private bank with $167 billion of assets under management, has followed the recent cautious approach of other Western investment companies, opening only a small office in Moscow last month.
For the bank -- as for a number other investors -- the presidential election will clarify the nature of Russia's investment climate and allow it to take a longer-term view.
'You can choose a right company in the wrong country and you get toasted. You can choose an average company in the right country, and you make a lot of money. And within the emerging markets, Russia is one of our three favourites,' Marson said, adding that Turkey was another top pick.
'The bottom three are Brazil, India and China, so it is interesting that within the BRIC bloc, Russia is really the one we think is fundamentally attractive.'
Russia's low valuation, which promises high returns, and the high risk premium that compensates for the political, social and economic unpredictability, are among the factors attracting investment into the country, Marson said.
Russia's dependence on oil and gas is one of the country's biggest weaknesses, as it makes the country very sensitive to changes in global markets.
'Those two negative factors aside, Russia is quite a compelling equity market story,' Marson said, adding that Russia has been one of the Lombard Odier's top picks for the past 18 months.
FOREIGN MARKETS
Given weakness in Western markets, emerging markets, including Russian, can no longer rely on those traditional sources of funding to finance investment and growth, Marson noted.
Greece is on the verge of default, he said, raising fears its bailout may spark off a chain reaction primarily affecting Ireland and Portugal.
'I think it's pretty well accepted that Greece will be in a position to default. I think it's also inevitable really that Ireland and Portugal do the same,' Marson said, adding that the needed policy tightening by 7-8 percent of their GDPs is unlikely to occur.
(Writing by Nastassia Astrasheuskaya; Editing by Kim Coghill) Keywords: RUSSIA LOMBARDODIER/ (+7495 775 1242, nastassia.astrasheuskaya@thomsonreuters.com) COPYRIGHT Copyright Thomson Reuters 2011. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
MOSCOW, May 30 (Reuters) - Russia is one of the world's most attractive emerging markets, but needs much tighter monetary policy to cut its dependence on the West, the chief investment officer at Swiss Lombard Odier told Reuters.
The country's loose monetary policy, similar to that of a number of other emerging markets, has allowed for an elevated real exchange rate to weaken equity returns, Paul Marson said in an interview.
'Monetary policy in Russia is a bit too easy still... The underlying inflation picture is deteriorating as domestic growth tends to pick up some of the burden of the growth from what was formerly the external growth engine,' Marson said.
He said, however, that officials will respond to voters' sensitivity to prices and will bring the annualised rate of inflation -- at 9.6 percent in April -- down before the March 2012 presidential election.
Lombard Odier, Geneva's oldest private bank with $167 billion of assets under management, has followed the recent cautious approach of other Western investment companies, opening only a small office in Moscow last month.
For the bank -- as for a number other investors -- the presidential election will clarify the nature of Russia's investment climate and allow it to take a longer-term view.
'You can choose a right company in the wrong country and you get toasted. You can choose an average company in the right country, and you make a lot of money. And within the emerging markets, Russia is one of our three favourites,' Marson said, adding that Turkey was another top pick.
'The bottom three are Brazil, India and China, so it is interesting that within the BRIC bloc, Russia is really the one we think is fundamentally attractive.'
Russia's low valuation, which promises high returns, and the high risk premium that compensates for the political, social and economic unpredictability, are among the factors attracting investment into the country, Marson said.
Russia's dependence on oil and gas is one of the country's biggest weaknesses, as it makes the country very sensitive to changes in global markets.
'Those two negative factors aside, Russia is quite a compelling equity market story,' Marson said, adding that Russia has been one of the Lombard Odier's top picks for the past 18 months.
FOREIGN MARKETS
Given weakness in Western markets, emerging markets, including Russian, can no longer rely on those traditional sources of funding to finance investment and growth, Marson noted.
Greece is on the verge of default, he said, raising fears its bailout may spark off a chain reaction primarily affecting Ireland and Portugal.
'I think it's pretty well accepted that Greece will be in a position to default. I think it's also inevitable really that Ireland and Portugal do the same,' Marson said, adding that the needed policy tightening by 7-8 percent of their GDPs is unlikely to occur.
(Writing by Nastassia Astrasheuskaya; Editing by Kim Coghill) Keywords: RUSSIA LOMBARDODIER/ (+7495 775 1242, nastassia.astrasheuskaya@thomsonreuters.com) COPYRIGHT Copyright Thomson Reuters 2011. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
© 2011 AFX News
