Neptune founder Robin Geffen has said he expects Russia - a country he has long been bullish on - to enter into recession this year.
Mr Geffen, who runs the £232m Russia & Greater Russia fund and is known for his bias towards emerging markets, said he had no Russian holdings in his global funds but continued to “find select opportunities” for his single-country mandate.
“We do see a moderate recession in Russia this year, and our current forecast for 2014 Russia GDP growth is a [contraction of] 0.3 per cent,” he said.
“This compares with a contraction of 7.8 per cent in 2009. Under current conditions we expect the recession to be short-lived and forecast a return to growth in 2015.”
Mr Geffen said he was monitoring the situation in Russia, which is under western sanctions following its heightened tensions with Ukraine, “extremely closely”.
In terms of his Russian holdings, Mr Geffen said he was focused on sectors and companies which could produce strong returns in spite of the cyclical slowdown.
“This includes sectors like telecoms, IT and food retail,” he said.
“We invest in companies here that have high quality management teams, proven execution track records and benefit from a lack of international competition in their sectors, boosting returns,” he said.
Mr Geffen previously ran the group’s Russia Special Situations fund but handed this to Tom Smith at the start of July.
Mr Geffen said in terms of foreign trade, Russia would be able to substitute food imports from embargoed countries with those from non-embargoed countries, such as in Latin America.
“For instance, Brazil increased its exports to Russia in July, prior to the introduction of sanctions, by nearly 80 per cent,” he said.
“Nevertheless, we are likely to see some upward pressure on Russian food price inflation. In terms of both the magnitude and the social impact, seasonality will play a big role.
“During the summer and autumn, Russia tends to experience very moderate food price inflation, often even some slight deflation. So the embargo’s effect will become more of a problem in winter.”
Mr Geffen said the Russian market was on a price-to-book ratio of just 0.7 per cent, “only marginally above the global financial crisis lows”.
“This has taken the Russian market’s discount to emerging markets back above 50 per cent, approaching levels not seen since 2001,” he said.
“Aside from low valuations, Russia also has one of the highest dividend yields in emerging markets (4.6 per cent) and one of the lowest payout ratios (16.5 per cent), providing strong support for the current dividend levels.
“That said, we would expect volatility in the market to continue while tensions remain in eastern Ukraine.”
