Julian Mayo of London-based emerging markets specialist Charlemagne Capital looks at the outcome of last week's elections in Russia and outlines the opportunities for investors.
Elections for the Russian Duma (parliament) took place last week. With over 90% of the vote counted, they have resulted, as expected, in a convincing victory for the United Russia (Yedinaya Rossiya) party, which supports President Vladimir Putin.
The other three parties that are likely to have won over 5% of the vote are Vladimir Zhirinovsky's Liberal Democratic Party (a misnomer for a party of nationalists), Gennady Zyuganov's Communists, who look to have lost half of their seats, and the new Motherland Party, which campaigned on an anti-business, pro-socialist platform.
The Liberal Democrats are likely to continue to support Putin and the results overall may give pro-Putin forces a two-thirds majority, enough to change the constitution.
What was less expected, however, was the eclipse of the liberal forces (Yabloko and Union of Right Forces) who are each likely to have received less than 5% of the vote and will therefore not be represented in the new Duma via the party lists.
This means that well-known opposition names such as Anatoly Chubais, Boris Nemtsov and Grigory Yavlinsky will see their positions diminished.
Election Results (based on 90.58% of votes counted):
United Russia (Yedinaya Rossiya) 36.8%
Communist Party 12.7%
Liberal Democratic Party 1.8%
Motherland (Rodina) 9.0%
Union of Right Forces (SPS) 3.9%
Agrarian Party 3.8%
(Source: Election Commission)
In our view the election is a trial run for the spring Presidential election. It is clear that Putin's personal popularity was the main factor contributing to the results of Sunday's poll. The electorate is unhappy with the background to the concentration of wealth as a result of Russia's asset grab in the mid-1990's and
is looking for Putin to manage the restructuring of the economy.
While we are concerned about the lack of an effective, pro-business opposition, we expect Putin and his supporters in the Duma to continue to reform Russia from the monopolistic capitalism of the 1990's to something closer to a market economy.
One political hurdle is out of the way and the other, next spring's Presidential election, now looks even more a foregone conclusion with Putin's popularity rating of around 80%. For this reason, we are optimistic and regard the recent volatility in the market as a good buying opportunity for medium and long-term investors in Russian equities.
Background Note: Charlemagne Capital is an independent emerging markets investment manager with over USD 850m of funds under management. The Net Asset Value per share of its flagship Magna Eastern European Fund has increased by 120% since launch in 1998.
copyright hedgeweek 2003