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Russia beats China over decade

Despite China's allure, Russia has produced better returns for investors over the past ten years.

By Charlotte Banks, Analyst, Financial Express
Friday July 23, 2010

Despite China being the preferred choice for emerging market investors, data shows that countries within emerging Europe have actually outperformed over a ten year period.

Sam Vecht, manager of the BlackRock European Trust said countries such as Russia and Hungary have produced better returns for investors over the long term.

"China has always been everyone's favourite, however, the Chinese market has not performed well and Chinese equity returns have in fact underperformed,” explained Vecht.

Data from Financial Express showed that over a ten year period countries such as Russia have performed better than China.

Performance of MSCI Russia vs MSCI China over 10-yrs


Source: Financial Express Analytics

Vecht said he is positive on the outlook for Russia for a number of reasons. "I think that earnings growth and GDP will exceed expectations this year. Russian companies are also quite profitable, which is a benefit for the country," he said.

However managers investing in China still believe the country can bounce back.

Gartmore's Charlie Awdry said the recent monetary tightening over the last three to six months had proven to be a headwind for Chinese equities but believed China is currently at decent value.

"The Hong Kong-listed Chinese shares where we primarily invest trade at 10.5x consensus PER and there are currently plenty of opportunities to invest in companies where the future earnings potential of companies is not currently fully represented by current stock prices," he said.

Premier Asset Management's Fen Sung said monetary tightening in China should now be over.

"In the last couple of days China has actually, not in so many words, indicated that they have done enough monetary tightening and they will then start to ensure that they can start to achieve growth," he said.

"First quarter GDP was 11.9 per cent and second quarter results were 10.3 per cent so you have seen a slow down which is good because it shows that the monetary tightening they did is actually working."

However, Baring Asset Management, who have a China and a Russia fund, said despite Russia outperforming for the last 12 months, it has actually underperformed China in the last 6 months.

"Whether Russia has outperformed China depends entirely on the period you look at. Both are very volatile markets and so performance leadership tends to vary considerably," the company said in a statement.

Further analysis on Financial Express back this up as the charts below show.


Source: Financial Express Analytics


Source: Financial Express Analytics

Matthias Siler, manager of the Baring Russia fund said despite seeing strong equity performances in 2009, 2010 has been more volatile.

"We see any weakness in the equity market as a buying opportunity for long-term investors looking for quality companies offering excellent prospects for future growth."

While, William Fong, manager of the Baring China Growth fund, said investors in China have been relatively cautious over the past 12 months yet said he remained confident in the outlook for the equity market.

"The economic environment is still a very supportive one for Chinese companies and we continue to believe that consensus earnings estimates are too low. Our view is that concerns about the imposition of a tighter monetary and fiscal policy in the short term are exaggerated. We have already seen some softness in the Chinese economy - most recently, evidence of lower property transaction volumes, and we do not believe the authorities would raise short-term rates in this environment."

Tim Cockerill, head of research at Rowan said if he had to choose between the two countries, his preference would be for Russia.

"Russia has been out of favour and it is known to be commodity dependent, but it is cheap and I think the Russian’s want to be part of the global economy. From a valuation point of view it looks attractive at the moment," he said.

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Data provided by FE. Care has been taken to ensure that the information is correct, but FE neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.

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