Prosperity Analysis

Prosperity Analysis

Taking stock

We recognise that the continued spread of Coronavirus, COVID-19 has led to extraordinary and challenging times for many countries and their citizens.

Prosperity Analysis

Coronavirus disease (COVID-19) and the oil price shock

Global markets are undergoing a period of increased uncertainty on account of the spread of coronavirus disease (COVID-19).

Prosperity Analysis

The USD 100bn question: Who really owns Surgutneftegas?

Addressing the 2017 St. Petersburg International Economic Forum, Alexander Branis (Chief Investment Advisor) joked that there are three types of ownership in Russia; private, state-owned and “nobody knows which” referring to Surgutneftegas.

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Inflation and interest rates

For the last 9 months, we have seen a marked decline in inflation.

Prosperity Analysis

Perception versus reality revisited

The portrayal of Russia is often very one-sided, filled with stereotypes and negative assumptions. A recent Financial Times article on four Russia-focused books was prefaced with the text below. Whilst this is the standard image that most people have of Russia, we would argue it is a misleading image.

Prosperity Analysis

State-owned enterprise dividend update – onwards and upwards

Russia’s march towards better corporate governance and returns to shareholders continues and is even gathering pace.

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Socially Conscious Investing

Prosperity Capital Management (PCM) believes that good corporate governance, high standards of environmental protection and responsible social policies are indicative of efficient management. Therefore, we do consider ESG related issues as part of our investment process.

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Shareholder dispute in Vostochny Bank results in multiple legal cases

On 14 February 2019, founder Mr Michael Calvey and three employees of Baring Vostok Capital Partners (“BVCP”) were detained and subsequently arrested by Moscow authorities alongside two other individuals in a large-scale fraud investigation in relation to Vostochny Bank.

Prosperity Analysis

The relationship between the Russian ruble exchange rate and the oil price

The Russian economy has been gradually diversifying away from oil and gas despite the massive and highly profitable production of hydrocarbons in the country.

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Company of the month; Gazprom Neft

The group of leaders of the Russian oil industry changed in 2017 as Gazprom Neft (SIBN RX) surpassed Surgutneftegaz by production and became the third largest oil company in Russia.

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Pension reform, infrastructure investment, market and dividend updates

Shortly after the formation of the new government, President Putin decided to use the recent strong confirmation of his mandate to push through pension reform.

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Russian presidential election 2018 – the outcome was never in doubt

I have witnessed six Russian presidential elections and in most cases there has been little excitement. The most uncertain was the 1996 election where Yeltsin's unpopularity gave the communists a real chance of winning.

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Russian sovereign debt elevated to investment grade rating

Prosperity Analysis

Founder exits 29.1% stake in Magnit to VTB

The Russian investment and food retail communities were left surprised by Mr Sergey Galitskiy’s announcement on Friday 16 February 2018 that he would sell a 29.1% stake in Magnit to the Russian state-owned bank VTB for RUB 138bn (c. USD 2.45bn).

Prosperity Analysis

Myth and reality; share of the government in the Russian economy

In recent years, there has been considerable discussion over the size of the Russian government’s participation in the country’s economy. Estimates of up to a 70 percent state-share in GDP have become conventional wisdom, whilst such figures are entirely incorrect and are calculated in a wholly inaccurate manner.

Prosperity Analysis

State-owned enterprise and dividend reform

Dividends clearly form one of the most important drivers of shareholder value for any company. They are particularly important in cases when there are some justified doubts as to the economic efficiency of the reinvestment of earnings, such as is the case with certain Russian state-owned enterprises.

Prosperity Analysis

Corruption in Russia; perception versus reality

In some way, Russian corruption represents the nexus of Russia-related stereotypes floating around in the international and local media as well as in the minds of many investors. Whilst many pretend to have it, there is obviously no hard data available to describe the issue. However, below we offer our own experiences and discuss our views on the matter;

Prosperity Analysis

US-Russian relations after the US presidential election

A ‘strong and enduring relationship’ or more of the same?

Prosperity Analysis

Corporate governance of state-owned enterprises

For years, Russia had the appearance of a low-yielding equity market - at least in the eyes of those who looked at it through the prism of the MSCI and similar indices.

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Seeing the wood for the trees

It is now twenty years since the launch of the Russian Prosperity Fund and twenty-three years since I first started investing in Russia. Often, people ask me how the outcome compares with the expectations I held when we started.

Prosperity Analysis

A hack job

Having invested into Russia and the Former Soviet Union for twenty years, it is fair to say that we have learnt to treat much of what the mainstream media writes and says about the region with considerable and justifiable suspicion.

Prosperity Analysis

A review of recent corporate governance and regulatory changes

Over Prosperity’s twenty-year experience of investing into Russia, corporate governance has represented the principal risk.

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Russia is not an enemy

The occasion of Prosperity’s 20th anniversary provides a reason for us to offer a longer perspective on international relations and Russia’s place within the international system.

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A real breakthrough in the corporate governance of state-owned enterprises

For years, Russia had the appearance of a low-yielding equity market - at least in the eyes of those who looked at it through the prism of the MSCI and similar indices.

Prosperity Analysis

Cost analysis at Russian state-owned enterprises

We have previously analysed how Russian companies have addressed the prevailing economic challenges and how this has led them to improve efficiency. Private companies have, logically, led the race, as they are, on average, more flexible and profit-oriented.

Prosperity Analysis

Consolidation in the Russian food retail sector

As in many of the country’s industries, Russia’s privatisation process led to a Darwinian ‘survival of the fittest’ process. Following the incorporation and privatisation of all stores individually, millions of companies and entrepreneurs were created.

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Major oil producers in a low oil price environment

In recent months, increasingly exaggerated predictions of the downside to the oil price have given way to more reasonable forecasts.

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‘Brexit’

The direct effects of ‘Brexit’ on Russia are few. Russia may well, however, be subject to global developments in light of the decision by the British people to leave the European Union.

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Russia and the road to Damascus

We have recently seen Russia engage in the Middle East, specifically with the intent of helping the Syrian government fight the Islamist forces that threatening to overthrow President Assad and create a semi-state in Syria and Iraq.

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Cost-response to economic challenges; portfolio companies adding intrinsic value

Prosperity has long argued that economic challenges in Russia lead to ever greater efforts by management to make companies more efficient

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Pursuing our minority shareholder rights through the Russian courts

When Prosperity seeks to explain how we deal with corporate governance issues through filing and regularly winning court and regulatory cases in Russia, we are met with scepticism, if not disbelief, by many institutional investors, prospective clients and even some of our investors.

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Us and them

We have compared Prosperity fund’s principal holdings with some of the world’s most prominent players in the same sectors

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Déjà vu

The current Russian market environment reminds me somewhat of my wedding. My wife, who is an excellent negotiator, had arranged for a very attractive accommodation price at the foremost hotel in Acapulco, where we were married. Some guests, seeing the low rate, concluded that the hotel could not be good as it is was too cheap a price and so booked themselves into a worse hotel for twice the cost. This is seemingly indicative of how some investors appear to think; Russian shares are so cheap that they simply must be bad. Let's instead buy Tesla and Uber - that is, after all, what the people who can see the future do.

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The Mriya debacle; a letter to shareholders

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An update on evolving events in Ukraine

With this being the fourth update that Prosperity Capital has issued on Ukraine, I will not reiterate all that has previously been noted. For convenience, we have included links to our previous commentaries at the base of this section of the Prosperity Newsletter.

Prosperity Analysis

Important steps forward in the development of corporate governance standards

It is important to not lose track of the continued improvements in Russia through the current din over international relations. These positive changes are far more relevant for long-term investors in the country – like Prosperity Capital and our clients.