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Russia: Reminders of the risks as well as rewards

"Snatching defeat from the jaws of victory." That’s one veteran Moscow-based fund manager’s view on recent events in Russia. And no, he’s not referring to the conflict with Georgia, where Russia’s still formidable military might has arguably carried the day.

Instead, he’s lamenting high-profile attacks from the Kremlin on important corporates, with the government accusing them variously of tax evasion, price-fixing or profiteering. Harsh words from former president-turned-premier Vladimir Putin about such companies as steelmaker Mechel had already sent investors scurrying for an exit from Russian equities in late July, even before the dispute between Russia and Georgia over South Ossetia descended into fighting in early August. During the hostilities in South Ossetia, finance minister Alexei Kudrin conceded that more than $7 billion of capital had left Russia.

Add in the continued ownership disputes at oil company BP-TNK and Norilsk Nickel and falling commodity prices – albeit from record highs – and there has recently been precious little cheer for market participants in Russia. "If the Russians had played their cards properly, they could have been the investment darlings of the world. The shame about recent events is that real money had begun to look at Russia; now it has made itself hostage to hot money again," says the fund manager.

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