Russian President Vladimir Putin wants to redirect nuclear missiles toward western Europe, and that will affect investors in the domestic Russian market, according to one portfolio manager.
"That's a sign of their [Russia's] inexperience and their poor handling of this public relations challenge, and it definitely does increase political risk," said John Connor, portfolio manager at Third Millennium Russia Fund. "The stock market has indicated that."
Connor said Russia's domestic economy, which he defined as anything from cement and cosmetics to real estate and cell phones, is a "boom town": Russia's gross domestic product has gone up and disposable income is up 26% yearly.
As for oil and gas, however, Connor advises against investment -- and his fund's holdings in the sector have dropped to 15% from 50%.
Ian Haque, fund manager at Firebird Management, has a rosier outlook.
"We think, in the second half of '07, you're going to see some recovery in the earnings of the Russian oil companies," Haque said. He likes Lukoil ,in particular.