OREANDA-NEWS. May 18, 2012. Russia will witness significant investment in the infrastructure sector following the presidential inauguration, when political uncertainty subsides and the pace of reform picks up, re-rating the Russian market and giving investors attractive returns from current levels, according to Renaissance Asset Managers (RAM).

Infrastructure is crucial to the modernisation and diversification of the Russian economy away from its dependence on natural resources - something the Russian authorities are likely to implement following street protests demanding political and economic reforms and improved living conditions, according to RAM.

RAM expects Russia’s new cabinet to implement significant economic and political reforms in 2012 and beyond; a move it believes will attract increased direct investment and introduce the flow of more stable capital needed for slower-burning projects such as those in the infrastructure space. Upcoming global sporting events – the 2014 Winter Olympics and the 2018 FIFA World Cup – put a clear timeline on the investments needed; and RAM notes that Russia has a track record of responding well to deadlines.

“We will witness significant investment over the coming three years,” says Takouhi Tchertchian, advisor of the Renaissance Infrastructure Equities Fund at RAM. “We call this the Infrastructure super-cycle, and based on evidence from other emerging market countries where this has happened before, such as India, we expect super-normal returns in the sector.”

RAM cites parallels for Russia in other emerging countries that have undergone economic reforms, and re-rated sharply as a result – among them Brazil, Indonesia and Turkey, noting that Indian infrastructure plays have been some of the world’s best-performing stocks since the advent of the BRIC grouping. Russian infrastructure stocks are cheap in comparison with their emerging-markets peers, as illustrated in the table below.

“Our Russian Fixed Income and Russian Equity Allocation products are global leaders in their categories,” says Barbara Rupf Bee, CEO of Renaissance Asset Managers. “We are already the largest private manager of infrastructure assets in Russia; our London-listed Russia Infrastructure Fund is in the top decile of infrastructure funds globally – and this before the cycle has begun in earnest. We always strive to stay ahead of the market, identifying emerging trends in their earlier stages to ensure excellent returns for our clients.”