Russian Rally to Power Through ‘Fear Factor,’ Jennings Says

By Denis Maternovsky and William Mauldin

June 2 (Bloomberg) -- Russia’s biggest stock rally in a decade will brush aside any temporary setbacks because valuations are still cheap relative to other emerging markets, Renaissance Group Chief Executive Officer Stephen Jennings said.

“We can see incredible short-term volatility, but I think in a year’s time for Russia it’s going to be like this crisis never happened,” Jennings said in an interview with Bloomberg Television in Moscow yesterday. “It is incredibly, incredibly uncertain, short term. One piece of bad data and the fear factor can go through the roof again.”

The 50-stock RTS Index has advanced 85 percent this year, making it the world’s best-performing large equity market, after a 72 percent decline in 2008, the most since the country defaulted in 1998. Even after the gains, the MSCI Russia Index is trading at six times earnings, less than half the ratio in the other so-called BRIC countries: Brazil, India and China.

Jennings, a New Zealand native who founded Moscow-based investment bank Renaissance Capital in 1995, said a prolonged economic slump in the U.S. and Europe will encourage investors to seek greater returns in Russia and the other BRICs.

“As the U.S. stabilizes and people realize how low growth is going to be in the U.S. and Europe, the strategic investor focus on the emerging markets will become really pronounced,” said Jennings, 48. “I think this process will unfold in the next six months.”

Prokhorov, VTB

Russia’s economy, led by oil and gas exports, will probably return to growth in the third quarter, after contracting in the first two quarters for the first time in more than a decade, UBS AG said in a research note yesterday. Gross domestic product may shrink as much as 8 percent this year, after a decade of average annual growth of 7 percent, Economy Minister Elvira Nabiullina said last month.

Jennings in September sold 50 percent minus one share of Renaissance Capital to Mikhail Prokhorov, now Russia’s richest man, for $500 million in cash as the credit squeeze deepened. That was less than a quarter of what state-run lender VTB Group offered for the bank in 2007, according to the Vedomosti newspaper. Renaissance Group also has units for consumer lending, asset management and merchant banking.

The dollar-denominated RTS yesterday jumped 7.3 percent to 1,167.42, the biggest daily gain in three months. The index is still 53 percent below its 2,487.92 high reached May 19, 2008.

Renaissance sees “fantastic organic growth opportunities” after it fired staff and cut costs 60 percent, not including bonuses, Jennings said.

To contact the reporter on this story: Denis Maternovsky in Moscow at dmaternovsky@bloomberg.net