Investors play a waiting game on Russia

The recent deterioration in relations between Russia and the West following the military action in Georgia has unnerved foreign investors, impacting the positive sentiment that has been built up over a number of years. According to fund manager Gareth Morgan, a specialist in the Russian market at F&C, the company has moved from overweight to neutral in its position on Russia and is eyeing developments closely.

"For investors, Russia is currently at a cross roads. Many Russian stocks are now at extremely attractive valuations, companies across a variety of sectors including retail, mobile telecommunications, steel and oil are reporting strong numbers and the economy is one of the most resilient in the emerging market universe," said Morgan.

"However, these tensions with Russia's neighbours and the West, combined with ongoing investigations by Russian authorities into high profile companies in the metals and mining sectors have significantly raised the risk profile for investors in recent weeks. As investors return from the holiday season, there is real potential for further capital outflows from the Russian market unless relations normalise rapidly.

"At this stage it is too early to aggressively buy into the Russian market despite strong attractions at the corporate level" he concluded.