Capital Inflow Slows Following Navalny Verdict
- By Irina Filatova
- Jul. 29 2013 08:29
- Last edited 21:11
Foreign investors have been wary ofápurchasing Russian securities ináthe wake ofáthe verdict against whistleblower Alexei Navalny, with capital inflow toáRussia-oriented investment funds slowing down toá$12 million during theáweek that ended onáJuly 24, according to data released byáEPFR Global on Friday.
This isánearly a tenfold decline fromáthe previous seven days when theáinflux reached $102 million, according toáthe U.S.-based research firm.
Generally cautious investor sentiment toward emerging markets like Russia was aggravated byáconcerns that theácountry might face new massive street protests triggered byáthe five-year prison sentence imposed onáNavalny onáJuly 18, analysts said. This was theáfirst day ofáthe week measured byáEPFR Global.
"Foreign investors are usually worried about possible political unrest, so there were concerns that theáscenario ofálast year, marked by large-scale protests, might be repeated," said Alexei Yevsyutin, aásenior vice president atáBCS brokerage. There was then aámajor withdrawal ofáfunds fromáthe domestic stock market, he added.
Foreign investors are also mindful of the political unrest in Turkey and Syria, resulting in a general negative sentiment, of which Russia is getting its portion.
"Russia is clearly aácountry ofáa different kind. The proverb 'once burned byámilk you will blow onácold water' perfectly illustrates current investor sentiment," Yevsyutin said.
During theáweek from July 18 to 24, three investment funds managed byáLondon-based firm Genesis Investment Management withdrew aátotal ofá$45 million fromáRussia, Interfax reported Friday, citing aáresearch note byáUralSib Capital. Theásum is almost equal to theá$44 million they had raised aáweek earlier, theánote said.
Theáverdict against Navalny, who was charged with embezzling 16 million rubles ($491,000), provoked aámassive sell-off onáthe domestic stock market, resulting ináthe biggest decline onáthe benchmark MICEX index inánearly aámonth.
However, Karen Isadzhanyan, aáclient manager atáMoscow-based brokerage Rye, Man & Gor Securities, pointed out that theánegative effect ofáthe announcement was short-term, with theámarket paring theálosses onáthe following day.
Theáslowdown ofáthe capital influx intoáRussia is anáindication ofáforeign investors' uncertainty over theáprospects ofáhigh-risk emerging markets, since they "are torn between theágenerally negative sentiment andácheap equities," Yevsyutin said, adding that Russia is still well-positioned compared with its BRICS peers.
Similarly, Isadzhanyan said foreign investors remain interested ináRussia primarily due toáthe relatively cheap assets it offers. Despite high risks, Russia is more attractive now than other emerging markets like Turkey, Isadzhanyan said.
That means Russia might see anáinflux ofáfunds ináthe future that could be withdrawn fromáother risky markets, she added.