That said, one region which looks cheap is Russia, specifically through the Neptune Russia & Greater Russia fund.
Russia is so much more than an energy story. I find it interesting that when I mention Russia as an investment area, many people visibly wince. I think this is based on past images of Russians queuing up for bread, the Cold War and, more recently, Anglo-Russian frictions which are both political and economic.
However, I believe that judging Russia purely on Western media reports is a mistake. It seems to me that it would be better to engage with the Russians rather than continually picking arguments. Both sides should strive for a greater understanding of each other.
Putting politics aside, I believe that Russia really is a fascinating investment area. For the third year in a row, I have selected it as my favourite market. It gives focused exposure to many of the key investment themes such as energy, infrastructure and growth in consumer spending. Many people consider investing in Russia to be purely a play on oil and gas. This sector is some 50 per cent of the market but it is wrong to believe it is the whole story.
Robin Geffen, who runs the Neptune Russia & Greater Russia fund, will tell you that domestic consumption is growing in importance all the time. Eighteen months ago, he started to switch the emphasis of the fund away from just pure energy and into the domestic plays.
At the top end of the consumer sector, you will see plenty of premium international brands but perhaps the growth story is about the middle classes who favour Russian brands. One example is Wimm Bill Dann which is the biggest food and beverage company in Russia. It is well known for its baby foods and fruit juices and has such a grip on the market that its main rival, Danone, has taken a 19 per cent stake in the company rather than try to compete directly.
Aeroflot is another good example. It has a terrible reputation in the West, much like Skoda once had, but it is very different today. Aeroflot is rapidly transforming into a modern airline with orders for Airbus and Boeing planes to 2014. The state still owns 51 per cent of the company but the rest is on the stockmarket. It has huge advantages, with preferential landing slots, lower prices for fuel and the fact that a new generation prefers to fly rather than going by rail.
Those are two of the less obvious investment opportunities in Russia but Geffen has not been ignoring the energy and mining sectors. He has exposure to Gazprom and a company called Polyus Gold, which has reserves three times higher than the better-known Peter Hambro Mining. Polyus is about to embark on a huge project to mine the second-biggest deposit of gold in Russia but this appears to have little reflection in the present share price.
Opportunities abound in Russia but there are significant risks. One of the biggest is inflation, which is around 12 per cent, and it is difficult to know how this is going to be tackled effectively. I see little chance that the government will cancel infrastructure projects to slow down the rate of inflation and such projects should bring significant benefits to the economy.
Electricity is another concern and it is here that Russia needs foreign investment. Politics cannot be ignored. The Russian government is stable but relies heavily on the strength and popularity of one man, Vladimir Putin.
These risks mean that the market is being discounted – I believe it is one of the cheapest of the emerging markets – and earnings’ visibility is often better than in Western countries.
You must not think that Russia is a one-way bet as it is higher risk. However, I believe that it would make a strong addition to the emerging markets part of a diversified portfolio. Neptune Russia & Greater Russia is an excellent way to play the prevailing themes in the world economy and to get them cheaply.
Mark Dampier is head of research at Hargreaves Lansdown