Country risk: Two-speed CIS offers positive return strategies

Jeremy Weltman
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When the Soviet Union broke up in 1991, few investors envisaged that the newly created republics would compete with their more westernized, democratic and reform-minded neighbours in central and eastern Europe. Two decades on, however, several – including Armenia, Azerbaijan, Georgia and Kazakhstan – are developing at a rapid pace.

The Commonwealth of Independent States remains a high-risk area for investors, according to the results of Euromoney’s country risk survey. Encompassing Russia and the former Soviet satellites, the region has an average score of just 34.7 on ECR’s 100-point scale. Having fallen by 0.2 points since the start of the year and 3.7 points since 2010, the region still ranks below most other parts of the world, with the exceptions of Australasia, Africa and the Caribbean.

Yet, given a lower starting point and looser linkages to eurozone economies and banks, the CIS has escaped the more dramatic score declines seen in neighbouring regions. The eurozone has fallen by two points so far this year, central and eastern Europe (excluding the CIS) by 1.3 points and Asia (also excluding the CIS) by 0.4. Over a longer, two-year time frame, the eurozone has shed 10.3...