OREANDA-NEWS. March 22, 2012. Russia will see a considerable inflow of investment in 2012, possibly the biggest in the past decade, according to Renaissance Asset Managers (RAM), the specialist emerging markets investment firm.

RAM believes conditions are in place in Russia for a cyclical upswing, noting that:

Inflation is slowing to low levels.

Macroeconomic policy will ward off any slowdown.

Bearish trends remain dominant.

A weaker ruble will offer competitive edge in terms of fundamental indicators, and will create future portfolio yield.

Sensitivity to cyclical fluctuations is overvalued.

According to RAM, despite popular belief, with low manufacturing costs, quality comes at a premium in Russia – a trend confirmed by comparative data (Russia's P/E and P/BV ratios having reached historic highs).

Oil prices, a key indicator of the health of the Russian economy, remain high. Investment fund flows into Russia are directly linked to oil price movements – the higher the price, the more money flows in.

Inflation in Russia is low and the country's debt is one of the lowest in Eastern Europe. Russia also has one of the lowest public debt-to-GDP ratios in the world. Interbank lending is on the rise, while in Europe funds remain locked within the European Central Bank.

In the past 10 years, per-capita consumer spending has increased to reach the highest level in the BRIC group. Russian consumers have spent 2x, 5x and 6x as much as consumers in Brazil, China and India, respectively. Over the same period, Russia has seen high yields from corporate operating cash flow in the energy sector.

RAM analysts noted growing Russian equity premiums since 2008, on the back of lower perceived country, credit and inflationary risks. Over the period, the sovereign spread fell by over 100%, while inflation has dropped to 6% and credit risk of prime borrowers plunged from 700 to 300 bps, while the Russian equity risk premium has widened to 14%.

In addition to established areas for investment in Russia, RAM expects to see new sectors open up, including infrastructure projects, as well as expansions in traditional sectors such as offshore oil & gas production.

“2012 presents possibly the best opportunity there has been for investing in Russia in the last 10 years. We expect a significant capital inflow into Russia this year,” said Plamen Monovski, President and Chief Investment Officer at Renaissance Asset Managers. “I believe people will begin to realize that political stability in Russia is really rather convenient, especially in comparison with the rest of the world, where change is all-encompassing.”