Global investment funds are turning increasingly skeptical about Russia's economic prospects, as investors show less interest in Russian equities. The "BRIC" investment idea is also no longer attractive.
The news came from the United States and hit big waves in Russia, but grabbed little attention in Germany: The Templeton Russia and East European Fund, a US investment fund founded 20 years ago by legendary portfolio manager and emerging markets expert Mark Mobius, had announced its liquidation.
The announcement marks the dissolution of a fund which identified the potential of the Russian stock market long before the hype around Russia and other BRIC countries (Brazil, Russia, India and China) took hold among small investors worldwide.
But the hype has now evaporated. It is felt not only by the US fund Franklin Templeton Investments, which is shuttering its Russia fund due to a lack of investor interest. In Germany, too, the industry is turning away from the former stock market favorites. "The euphoria surrounding BRIC is over," Feri EuroRating Services, a European rating agency, stated in a press release as early as a year ago.
Christian Michel, a capital markets expert at Feri EuroRating, told DW that "at present, emerging market funds are seeing more outflows than inflows." As far as Russian equities are concerned, Michel noted, many investors got out of them in mid-2014.
"At the moment, the Russian market is unappealing for an overwhelming majority of investors, as the risks outweigh the benefits," the expert said, referring both to the political risks such as the Ukraine conflict and Western sanctions, as well as the economic risks related to the deep recession the Russian economy currently finds itself in.
China and India remain attractive
The attractiveness of investment funds focused on Russia and BRIC has declined significantly in recent years, said Peter Schille, founder and head of the German financial news portal "finanzen.net." Schiller told DW that the number of people seeking information about BRIC-focused funds has dipped by about a fifth since 2011, while the corresponding figure for Russia-focused funds has more than halved.
At the same time, there has been a growing interest in investment funds in general, Schiller pointed out, adding that there has also been a surge in the attractiveness of China and India. "While the idea of investing in the entire BRIC grouping lost favor, that's not the case about investing in China and India individually, and information about both of them is increasingly sought after," the analyst said.
Savers exit, speculators enter
In Russia, however, the information that is frequently sought after by the users of the "finanzen.net" website involves the indices of the Moscow stock market, the ruble's exchange rate and individual stock movements, noted Schille. "The number of visits to our site seeking information on the RTS index has nearly tripled since 2011."
These trends suggest that the Russian market is mainly drawing traders and speculators, who aim to benefit from the short-term fluctuations of individual securities and currencies, instead of long-term investors, the expert underlined.
Nevertheless, German retail investors looking for a Russia-focused investment fund still have a wide range of options. The Internet bank comdirekt, for instance, offers its customers around 11,500 different equity funds, out of which 68 deal exclusively with Russia equities. And one of them is DWS Russia.
Losses for long-term investors
DWS is Deutsche Bank's asset management arm, and DWS Russia has assets worth 132 million euros under its management, according to information on the fund's website. That figure is far greater than the $58 million, which the Templeton Russia and East European Fund was forced to liquidate due to its small volume.
By comparison, DWS India manages 177 million euros, while DWS Invest Chinese Equities has assets worth 216 million euros under its management and DWS Germany some 5.5 billion euros.
DWS Russia was launched in April 2002. Those who invested in the fund back then have seen the value of their stake jump by 55 percent. However, investors who joined later had to suffer losses. People who invested in the fund three years ago have seen the value of their investment fall by about 21 percent, and after 10 years of holding time the loss is expected to be more than 22 percent.
In March 2005, DWS also set up a BRIC fund named DWS Invest BRIC Plus. In May 2013, it was renamed DWS Invest Global Emerging Markets Equities. At the same time, it also changed its investment policy and now invests in emerging markets across the world.
DWS published an article titled "The end of BRIC myth?" on its website in May 2015. A few years ago, BRIC countries were regarded as icons of economic growth, but enthusiasm has sharply slid in recent times, the article noted.
However, for those actively seeking potential investment opportunities in these markets, they still can find many attractive opportunities, the fund underlines, adding: "Russia is probably not the place where these opportunities are currently present."