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Brain power

Did you know the ability to save money is determined by which side of the brain a person thinks with?

Creative types who use the right side of the brain are more likely to have debts and less likely to have savings.

Those who use the left side of the brain are more aware of the importance of managing their finances.

It would be interesting to carry out further research to see how many of the right-siders have protection.

On the other hand, the left-siders might be good at saving but does that mean they have thought about protection?

There is a school of thought that suggests protection is not really needed. Instead of taking out protection, some sceptics create their own personal catastrophe fund by saving the money they would have paid in premiums.

Saving money for a rainy day is nothing new but can savings ever be a sensible alternative to protection?

Consumers should think about how they can provide a financial safety net for themselves and their families.

At present, life insurance is as cheap as it has ever been. People well into their 40s can get over £100,000-worth of life cover for £10 a month. It would take over 800 years to build up a similar lump sum by saving the premiums in a catastrophe fund.

In order to provide a lump sum of that size over an average working life of 40 years, a person would have to put away up to £250 a month. Most people will not save anything like that because of other expenses and even if they could, what if something goes wrong before they have built up their fund?

This shows that protection is good value for money and that savings cannot replace it but should exist alongside it. With the right cover in place, those hard-earned savings will be protected if things go wrong.

The advocates of saving over investing in a protection policy also argue that most people do not need life insurance anyway because they already have life insurance as part of their employment package.

This is often the case but the three or four times salary provided is probably not enough to cover a family’s needs.

The argument then suggests that the closer people are to retirement, the less they need life insurance because they will have paid off their mortgage and the children will have left home. This might be the case but there are also people who may have remortgaged or who may be raising a second family.

The worry is that such generalisations could make people complacent when what they need is advice tailored to their individual circumstances.
An adviser will take account of employer-provided protection and whether a mortgage is close to being paid off. But unless an individual seeks advice, they could be under-protected. Or worse, they could be under-protected and in ignorant bliss that they do not need cover.

Most people could not hope to put aside the sums of money that a payout from an insurance policy can offer, so whether a person thinks with the right side of the brain or the left, it is vital they have a financial safety net in place. And with insurance costs set to rise, now is the perfect time to invest in protection.

The presidential inauguration is due to take place in early May and the new president will have two weeks to propose a new PM to the Duma. It is possible that key cabinet appointments and a policy platform will begin to emerge in the meantime.

Russian equities trade on a significant valuation discount to their own history and to other emerging markets, owing in part to the political risks.

When measured relative to its broad peer group, the MSCI Global Emerging Market index (currently trading on 10.4 times), Russia’s discount is nearly 50 per cent (compared with an average of 25 per cent) to the MSCI GEM index over the past 10 years.

While the election result was expected and to some extent has been priced in (at the start of March, equities were up by 26 per cent for the year), we believe the market is positioned to rally further. The political dynamic in Russia may be undergoing significant change as the urban middle class seeks a policy voice but this may take years to play its course.

Putin’s campaign was structured to address many of the issues raised, particularly reducing corruption, and the market will look for evidence that real policy reform will be implemented. Proposed structural reform, if implemented properly, should improve the longterm growth outlook for the Russian economy.

In his manifesto, Putin set out economic policy priorities, including privatisation, ratification of WTO membership and other measures to improve the business climate and attract investment.

We view it likely that these issues will stay at the top of his agenda in the run-up to and following the inauguration. We would view progress in these areas as positive for the equity market. Major state-run energy companies could benefit more from a shake-up of the status quo, particularly if management in these companies is passed to more market-friendly individuals.

We also believe Putin will assemble a market-friendly cabinet and may drive personnel changes at the top of key state-run companies. This could mark an improving trend in perceived corporate governance.

Such actions would also help to reduce the perception of risk and push Russian equities higher as, in the short term at least, falling political risk should be positive for the whole stockmarket.

Energy should remain a key driver of the economy. As the world’s biggest producer and exporter of oil, the commodity’s importance to Russia cannot be underestimated but there are opportunities in the financial sector too, a direct play on Russia’s recovering economy.

With high net interest margins, high capital adequacy and loan growth expected to be 20 per cent for the sector in 2012, coupled with low valuations, relative to emerging market peers, we believe good investment opportunities in the sector can also be found.

But the market will undoubtedly remain sensitive to ongoing developments as no region, including Russia, can be viewed in isolation of factors beyond its borders.

Russian equities will continue to be influenced by a range of external factors, including the eurozone debt crisis, global growth, geopolitics and, of course, commodity prices. It is likely that Russia will remain a high-beta market for some time, meaning that any deterioration or improvements in these external factors would be likely affect Russian equities disproportionately.

Ed Conroy is co-manager of the HSBC GIF Russia equity fund

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