East Capital’s Jacob Grapengiesser on Russian sanctions

MoscowRussian companies geared towards the consumer, such as food retailers, may still see high growth despite Western sanctions related to the Ukraine crisis, a fund manager that invests in the country says.

The Russian economy can anticipate zero growth in 2014 and only 2% in 2015, says Jacob Grapengiesser, senior adviser for East Capital Group, but not all businesses will struggle.

Grapengiesser says consumer-orientated companies may still show high growth. An example is food retail, which will be hit by import restrictions on US and EU goods, forcing prices to rise.

Structural growth is still intact and means some consumer-orientated companies may grow by around 30% in 2014, the fund manager adds.

He also points out the Russian consumer is not burdened by debt and will still be able to use loans.

"The combination of higher food prices and low economic growth is likely to hit consumers' pockets and spending, but we still believe the long-term case for certain sectors and companies is valid, although with revised numbers."

East Capital Group manages approximately €3.2 billion in public and private equity funds, and Grapengieser is an emerging and frontier market specialist.

Grapengiesser adds: "Sanctioned companies are a slightly different story. Investors are not prohibited from owning them, but there might be soft reasons why certain investors would refrain from owning certain stocks or buying more. Hence there is a risk that they would not recover to the same extent as the rest of the market."

Last week, bank ING said the effect of the sanctions could be just as severe outside of Russia, with Germany and Poland potentially the hardest hit.
ING highlighted the European Commission's decision to make €125 million available to compensate EU producers of fruit and vegetables due to the Russian ban on Western food products. Findings have shown that 130,000 European jobs could be threatened by the crisis.

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