Thursday January 6, 2000
FINANCIAL TIMES
John Thornhill
Foreigners go wild about Putin
Call it the Putin effect. But the Russian stock market has risen 76 per cent since Vladimir Putin was appointed prime minister on August 9.
Strange as it may seem, foreign investors have gone wild about a former KGB officer who spent much of his early career trying to steal industrial secrets from the west and whose only major policy initiative has been to crush Chechnya.
But there is a cold-hearted logic underpinning the market's enthusiasm for Mr Putin, who became Russia's acting president on New Year's Eve and looks set to win a fresh four-year term on March 26.
Bill Browder, head of Hermitage Capital Management, argues that the two major concerns overhanging the Russian market - political uncertainty and poor corporate governance - have both improved dramatically over the past few weeks.
"It looks highly likely that Putin will be president soon. And while Russia is still a land where shareholder rights are not widely appreciated, at least they back down in the most egregious cases, such as Sidanco and Yukos. This bodes extremely well for Russia in 2000," he says.
Maxim Shashenkov, a Russia strategist at Alfa Bank, says it is too early to tell what policies Mr Putin may pursue as president but he will at least create the conditions in which further reforms become possible.
"Most investors believe - correctly in my view - that Putin will be strong enough to maintain political stability over the next four years and find an equilibrium between the warring financial-industrial groups," he says.
Mr Browder agrees. "Almost anybody who shows up at the job every day would be a better president than Mr Yeltsin. He was a revolutionary leader but he was not a manager.
"Putin has shown he can manage a very difficult military campaign in Chechnya. Let's just hope he can show such single-mindedness when it comes to tackling the economy," he says.
Some analysts, though, remain sceptical. John-Paul Smith, Russia equity analyst at Morgan Stanley Dean Witter, suggests that investors - like Russia's voters - are being manipulated by the Kremlin propaganda machine.
"The spin that has been swallowed by a lot of investors is that Putin is an economic reformer disguised as a nationalist. But we have been down this road before. People have mouthed the right words and it has not been translated into action," he says.
But Mr Browder argues that the low valuation of Russian assets leaves an big margin for error. "From an investor perspective all we are hoping for is that things go from horrible to bad," he says.
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