Barings sees China boom fuelling Russia growth

LONDON (Reuters) - Chinese demand for oil and commodities is driving Russia’s growth, reducing its exposure to Western economies and offering good equity deals, Barings said on Monday.

An engineer on a bicycle checks pipelines at a PetroChina's oil refinery in Lanzhou, Gansu province, April 21, 2008. REUTERS/Stringer

Risks remained, Baring Russia Fund manager Ghadir Abu Leil-Cooper said, particularly of government interference in private investments, but she said Russian equities still offered good value.

“What we’re seeing is Russia much more dependent on the growth of the Chinese economy than on the west,” she told Reuters in a telephone interview.

“But the story isn’t just a commodity story, the rest of the economy is also doing well. Over $1 trillion (500 billion pounds) is being spent on infrastructure and that’s why we think growth will be between six and seven percent in the next couple of years.”

She said her $110 million equity fund -- which she said provided returns of around 20 percent in the last year -- was targeting both oil and gas companies as well as other mining firms, commodity companies and others in the broader economy.

“These companies are not only benefiting from growth in Russia but also in China and the Middle East,” she said.

With oil hitting record prices, investors have been shrugging off a dispute with the West over the expulsion of diplomats, rising tensions between Russia and neighbour Georgia and a string of human rights and media freedom complaints.

“We monitor them very closely but they’ve been going on for a while now and so far they haven’t changed the investment case,” she said.

The transition of power from President Vladimir Putin to chosen successor Dmitry Medvedev -- with Putin becoming prime minister -- reassured investors of continuity, she said.

But Abu Leil-Cooper said worries did remain over security of investments, with investors still unnerved by the breakup of Russia’s largest oil firm YUKOS and imprisonment of its chief Mikhail Khodorkovsky several years ago.

That has put some investors off Russia’s energy sector altogether. They prefer to put their money in companies that seem less likely to attract the attention of the Russian state. But Barings said good deals remained.

“There is not so much protection for private holdings but that is one of the reasons things are relatively cheap in Russia,” Abu Leil-Cooper said.