bne:Chart - Is Russia still an 'ethical' investment?

By bne IntelliNews October 24, 2014

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Is Russia still an ethical investment? bne sources say some fund managers have been pulling their money out of Russia, afraid of reputational risks or simply because they don’t want to support a military aggressor on principle.

So just how does Russia stack up against its emerging market peers for things like business freedoms, corruption, free press and so on? Certainly the Russian stock market is being punished by this sort of thinking: the RTS index broke out of its 1,110-1,400 range at the end of October on the downside on the back of more Russian war games in the Baltics, amongst other bad news.

This week's bne:Chart attempts to shed some light on the question by comparing a raft of indices from organisations such as Transparency International, Reporters without Borders and the World Bank, in our interactive chart below (use the pull down menu to change the parameters).

We averaged all these indicators together to give an overall score to every country that includes things such as press freedoms, property rights, corruption and so on. On this (admittedly somewhat arbitrary) basis Russia comes out in the middle of the range, but slightly ahead of all its BRICS peers bar South Africa. Russia's overall score was 49.9 out of 100, versus China's 50.9, India's 56.9 and Brazil's 57.3. South Africa was far ahead 63.6 (where 100 is best) putting it on a par with many European countries.

Other notable countries that did well include Kazakhstan (61.1) and the standout Georgia (71.8), which is on a par with the leading economies in Western Europe. The other noteworthy result was Ukraine (50.6), which is slightly worse than Russia, yet is seen to be good enough to receive an invitation to partner with the European Union.

Running through the various subcategories, as might be expected Russia's score card is mixed. It does badly on property rights (25), corruption (22) and financial freedoms (30). But in none of these is there that much difference from its peers (and on corruption it is again better than Ukraine, which Transparency International has dubbed "the most corrupt country in Europe").

However, in other categories Russia does pretty well compared with its peers. On press freedom, Russia (57.2) easily beats China (27) and Turkey (54.1), which currently has the most journalists in jail in the world. And in a few categories such as fiscal freedoms (85.6) Russia scores better than many developed world countries. For example, Russia is in the global top 10 for the quality of its tax administration – a function of the extremely simple flat tax regime it adopted.

Putting the question the other way round: if investors exclude Russia as an unethical investment, then they would probably have to exclude all emerging markets because they all suffer from more-or-less the same problems.

The final question to pose is whether Russia should be excluded for its unprovoked military invasion of Ukraine. If this is grounds to withdraw investment, then fund managers might also be forced to withdraw their investments in the US, as Washington was arguably responsible for launching an unprovoked war on Iraq. 

See the interactive version here. Use the pull down menu to change the parameters.



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