Investing In Emerging Markets

Tuesday, September 26, 2006

Volatility in major markets as well as oil price movements will impact emerging markets, say investors.

Gareth Morgan, portfolio manager for Russian equities at F&C Asset Management, says the current volatility of oil prices is more of a problem for investors then current tensions in the Russian oil market.

F&C Asset Management is looking more to a domestic bias in Russia, rather than positions in the oil export market, he says.

The base of the Russian economy has strengthened, ensuring the country can weather the volatility of oil prices, despite the Russian index being heavily weighted toward commodities, he adds.

Global sentiment is currently turning away from emerging markets, particularly as the US is withdrawing back to local markets.

Robin Geffen, chief investment officer at Neptune Investment Management, agrees that the major markets are influencing emerging markets.

“Major markets are volatile, coming off the back of the US and the statistics that are coming out of there. As a result we will see volatility in emerging markets which will result in moves in oil prices,” he says.

Meanwhile, the troubled Russian Sakhalin oil and gas project is widely expected to go ahead, according to investors.

This is because, despite holding the reserves, Russia does not have the technology required for the exploration project.

Additionally, Russia will not want to be seen as an unstable investment market, or to be reneging on contracts.

Advisors expect to see tensions between the various parties continue, due to political manoeuvring and the influence of the Russian government.

Considerable cost over runs are also believed to be affecting the project.

Steve Thornber, head of global energy research team at Threadneedle, says he is looking to invest his oil interests into drilling in the Gulf of Mexico.

Threadneedle has added Texan oil drilling companies Todco and Ensco to its preferred list of stocks.

He believes there are good structural reasons for investing in companies involved in drilling for oil in the Gulf of Mexico.

While he agrees that the Sakhalin Island project is likely to stay on track, he feels that such large companies are generally under pressure from government tax and rising costs.

The major companies are all about production but are being restricted by the limited number of wells and the rising costs of rig rates.

As a result, Threadneedle is looking at smaller companies that offer a better economic return such as oil refineries, he adds.

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