Like its Western counterparts, the Russian stock market has been badly buffeted in recent weeks - and again in the past few days. Meera Patel reports back from Moscow where she's looking at the investment opportunities.
Conditions in Russia bear no resemblance to what's happening in the West or the crisis in 1998 when Russia defaulted on international loans because of its huge debts. So says Bob Foresman, the deputy chairman of Renaissance Capital, Russia's leading Western-standard investment bank.Ten years ago Russia was still emerging from the Soviet era and its cash reserves stood at just $7 billion compared with today's figure of $750 billion. The problem today, he suggests, lies not with the strength of the Russian economy but with the sentiment of foreign investors.
To put this in perspective, Mr Foresman believes the Russian government should not have to inject any more money into the banking system to see it through the current global credit crunch as it has already injected $150 billion into the financial system to keep liquidity levels healthy but only on the basis of a repayable three-month loan.
The real problem came with the fall in oil prices and the conflict in Georgia which hit share prices in Moscow badly - although the Russians are very defensive about their actions, saying that the reasons for the conflict and their intervention have been misrepresented in the Western media.
The point they make continually is that we need Russia and they need us - and we need to be careful not to box them into a political corner.
I was speaking to the current adviser of President Medvedev and he was very positive about the political outlook suggesting that Russia and the West are now back on track in terms of political dialogue.
My trip has also included a visit to Lukoil - Russia's biggest oil company which has more than 10 trillion barrels in proven oil reserves. That makes it second only to Exxon globally in terms of proven reserves. Despite that it has a price/earnings ratio of just two which in my mind is nonsense and makes Lukoil a really attractive buying opportunity.
The company has a huge amount of cash on its balance sheet. What should make it even richer are tax breaks to be introduced by the Russian government. The government now proposes to reduce taxes on oil so much so that it will add an extra $2.6 to $2.9billion worth of additional pre-tax income onto Lukoil's balance sheet for 2009. It makes Lukoil's prospects seem even more compelling.
Undoubtedly the sell-off in the Russian stock market has been driven by foreign investors and their negative sentiment. But fundamentally the economy and Russian companies appear to be in great shape. Indeed, as I come to the end of my Moscow visit I am feeling extremely positive about where we stand with Russia - politically things seem to be on the mend, its companies are cash-rich and strong.
But these thoughts come with a health warning: this is a high-risk marketplace and investment here should be for the long-term. It will never have the attractions of a safe haven but the rewards could be huge for adventurous investors.
Can we learn from Russia's experience of what happened with its own credit crunch in 1998?
Its captains of industry say that they emerged fitter and stronger with the help of the government which helped to bear some of the expense and risk but maintained that private companies should be primarily responsible for weathering the storm themselves.
Our credit crisis in the West stems from the US sub-prime market and involves a great deal of leveraged debt. That is something you will not find in Russia which is cash-rich. As I said, much of the volatility is a result of negative sentiment by foreign investors.
Meera Patel
Investment Analyst
