Emerging market performance
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Today’s first “Brics” summit in Russia’s Urals is a tad embarrassing for its host. After all, China and India remain motors of the global economy, with growth this year forecast at 7.5 and 5.8 per cent respectively; Brazil is expected to see a mild 1 per cent decline. Russia is a distant laggard, with consensus estimates suggesting its economy will shrink 4.5 per cent, and many forecasters expecting worse. But Russia has a fig leaf: its stock market. Moscow’s RTS index is up 70 per cent year to date – the world’s best-performing big market.

Mostly, the reason is oil. With oil and gas accounting for two-thirds of exports, Russia is by far the most energy-dependent Bric. Equity prices marched down the hill with crude prices last year, and up again this year. Beyond that, the rally does not reflect huge new-found foreign enthusiasm for Russia. Much of the rise has resulted from trading by existing investors; fund inflows have been relatively puny. Foreign investors have committed little new money to Russia beyond what is required by benchmarking with emerging market indices.

Data from EPFR Global show emerging market portfolios’ average Russian weighting is just over 6 per cent, half the level of a year ago. Yet emerging market investors have average exposure of about 15 per cent to China and Brazil. Second quarter to date, EPFR says $6.5bn of funds have flowed into China, $5.1bn into Brazil, and $1.9bn into India. Russia trails on $1.4bn.

Foreign investors face a dilemma: leap, late, into Russia’s rally – or wait for a correction. The same factors deterring them thus far will probably keep many away. There are bad-debt fears, with Russian corporates needing to refinance $100bn of foreign-currency debt this year. Then there are governance concerns, notably a threat to Norway’s Telenor. And while $70 oil benefits Russia, higher prices could start hitting global growth, affecting Russia too. Attracting fellow Brics to a diplomatic shindig is one thing; luring large numbers of investors back into Moscow is more tricky.

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