JOHCM’s Syme on a ‘huge regressive step’ for Russia

JOHCM GEM Opportunities manager James Syme said Vladimir Putin’s decision to run for the Russian presidency in 2012 has already proved negative for investors in the country.

In a rare show of defiance against the ruling United Russia party, public protests gripped Moscow on Saturday following disputed parliamentary elections - the largest manifestation yet of the unrest which helped push Russia's Micex index down 7.3% last week.

But it was Prime Minister Putin's decision to again stand for the presidency in next year's elections, announced in September, that Syme said has already put a dampener on the prospect of investing in Russia.

"The Putin announcement was negative for investors, particularly as it led to the resignation of finance minister [Alexei] Kudrin," the former Barings manager said.

"He was the only person keeping the Russian economy on a forward path. He has walked away, and that is a huge and regressive step."

Speaking prior to the recent unrest, Syme said Russia "now looks like it is heading the way of either the Ukraine - relatively stable politically but economically chaotic - or even Nigeria".

Despite that, Syme and co-manager Paul Wimborne hold two Russian companies within the JOHCM Global Emerging Markets Opportunities fund, launched earlier this year.

Their two picks are state-owned energy giant Gazprom and state-sponsored potash company Uralkali, in part because both can "dictate the terms" of their business. But Syme emphasised neither stake is a long-term holding.

"Russia continues to be plagued by capital flight, and you have to ask what other than resources can it really offer? Where is the productivity growth and where is it going to come from?" he said.

Syme, who uses a top-down asset allocation process covering all 21 countries in the MSCI Emerging Markets index, instead favours China and India as the largest absolute and relative country positions in his portfolio. Growth staples such as Chinese hygiene product manufacturer Hengan International are among the largest holdings.