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Russia: U.S. Investors Confident Despite Concerns

  • Robert Lyle

Washington, 25 August 1997 (RFE/RL) - A new survey finds that despite concerns over crime and corruption, lack of shareholder rights, and perceived political instability in Russia, the vast majority of major American investors still believes Russia has the best market outlook of all former communist countries.

The survey polled 40 leading investment firms, pension funds and others, with $700 billion in assets under management. It found that three-quarters of the respondents said Russia is the "premier vehicle for post-communist investment" and that 60 percent believe that Russia's stock market is still undervalued.

The Russian market has gone up over 200 percent in the last year alone, but most institutional investors said there was plenty of long-term potential in that market. Just 14 percent said they felt the market was overvalued.

The survey was conducted recently by New York-based Broadgate Consultants, a U.S. corporate and capital markets communication firm.

Despite this general optimism about Russia as an investment market, most of the firms also expressed real concerns over the climate for investors in Russia.

Nearly 90 percent of the respondents told the survey that Russian companies fail to provide adequate financial, operating and strategic information and 59 percent said they have very low levels of confidence in the accounting standards used by Russian companies.

Over 60 percent are not satisfied with the progress being made by Russian companies in improving corporate governance standards.

Confidence in the information provided by Russian companies is important, said the investors. Otherwise, American investors could be scared away over the long term. Said one respondent: "Access to U.S. capital is not automatic. Russian companies seeking the continued support of U.S. fund managers should recognize and address their concerns."

Only six percent of those surveyed felt that managers of Russian companies understand and are sensitive to the information needs of foreign and domestic investors.

As for the Russian government, nearly 70 percent of the American investors surveyed expressed increasing frustration with Russia's judicial system and securities laws and rated the government's efforts to enforce shareholder-friendly laws as only "fair to poor."

The Broadgate survey found, however, that most of those surveyed gave the Moscow government good markets for promoting private sector economic growth in the country. Seventy percent said they believe that Russia's GDP (gross domestic product, a measure of the size of the economy) should grow by at least two percent this year.

The investors also believe that the greatest potential for investment in Russia in the coming year is in small to mid-sized companies and that communications and natural resources market sectors are the best position for growth in the next two to three years. The investors generally felt that industrial and infrastructure companies will do far less well in coming months.

With all their concerns over the situation for investors and private companies in Russia, 80 percent of the major U.S. investors said they still expect to maintain or increase their current level of investment in Russia over the next 12 months.

Only 16 percent of the respondents believed that Russia's outlook was below average for all nations in the region. The survey did not ask about any other country and did not name the other countries included under the term "former Soviet bloc countries."